- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 8, 2007
Date of Report (Date of earliest event reported)
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JOHN WILEY & SONS, INC.
(Exact name of registrant as specified in its charter)
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New York
(State of Incorporation)
1-11507 13-5593032
(Commission File Number) (IRS Employer Identification Number)
111 River Street
Hoboken, NJ 07030
(Address of principal executive offices) (Zip Code)
(201) 748-6000
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
------------------
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[X] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.01 Completion of Acquisition or Disposition of Assets.
Effective February 2, 2007, John Wiley & Sons, Inc. (the "Company") finalized
the previously announced acquisition of Blackwell Publishing (Holdings) Ltd.
("Blackwell"), pursuant to the Acquisition Agreement, dated as of February 2,
2007 (the "Acquisition Agreement"), by and among the Company and Blackwell,
whereby Blackwell became a wholly owned subsidiary of the Company. As
contemplated by the Acquisition Agreement, the total cash consideration paid was
approximately $1.1 billion (P572 million).
The source of funds for the Acquisition included existing cash, cash equivalents
and $1.1 billion borrowed under the Credit Agreement as described in the 8-K
filed by the Company on February 8, 2007.
ITEM 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Blackwell Audited Consolidated Financial Statements as of December 31, 2006 and
2005 and for the fiscal years ended December 31, 2006, 2005 and 2004, filed as
Exhibit 99.1.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Combined Financial Statements as of and for the
nine months ended January 31, 2007 and for the fiscal year ended April 30, 2006,
filed as Exhibit 99.2.
(d) Exhibits.
Exhibit No Description
----------- ------------------------------------------------------------
23.1 Consent of Ernst & Young LLP.
99.1 Blackwell Audited Consolidated Financial Statements as of
December 31, 2006 and 2005 and for the calendar years ended
December 31, 2006, 2005 and 2004.
99.2 Unaudited Pro Forma Condensed Combined Financial Statements
as of and for the nine months ended January 31, 2007 and for
the fiscal year ended April 30, 2006.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
JOHN WILEY & SONS, INC.
Registrant
By /s/ William J. Pesce
-----------------------
William J. Pesce
President and
Chief Executive Officer
By /s/ Ellis E. Cousens
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Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
By /s/ Edward J. Melando
-----------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: April 18, 2007
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------------------------------------------
23.1 Consent of Ernst & Young LLP.
99.1 Blackwell Audited Consolidated Financial Statements as of
December 31, 2006 and 2005 and for the calendar years ended
December 31, 2006, 2005 and 2004.
99.2 Unaudited Pro Forma Condensed Combined Financial Statements as of
and for the nine months ended January 31, 2007 and for the fiscal
year ended April 30, 2006.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses:
(1) Registration Statement (Form S-8 No. 333-123359) pertaining to the 2004 Key
Employee Stock Plan of John Wiley & Sons, Inc.,
(2) Registration Statement (Form S-8 No. 333-93691) pertaining to the John
Wiley & Sons, Inc., Long Term Incentive Plan
(3) Registration Statement (Form S-8 No. 033-62605) pertaining to the John
Wiley & Sons, Inc., Employees' Savings Plan
(4) Registration Statement (Form S-8 No. 33-60268)
of our report dated April 16, 2007, with respect to the consolidated financial
statements of Blackwell Publishing (Holdings) Ltd included in this Current
Report (Form 8-K/A) of John Wiley & Sons, Inc.
[Ernst & Young LLP]
London, England
April 16, 2007
Exhibit 99.1
Consolidated Financial Statements
Blackwell Publishing (Holdings) Ltd.
Years ended December 31, 2006, 2005 and 2004
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Blackwell Publishing (Holdings) Ltd
We have audited the accompanying group balance sheet of Blackwell Publishing
(Holdings) Ltd as of 31 December 2005 and 2006 and the related consolidated
profit and loss account, consolidated statement of total recognised gains and
losses and consolidated statement of cash flows for each of the three years in
the period ended 31 December 2006. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. We were not engaged to perform an audit of the
company's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Blackwell
Publishing (Holdings) Ltd at 31 December 2005 and 2006 and its consolidated
results of operations and consolidated cash flows for each of the three years in
the period ended 31 December 2006 in conformity with accounting principles
generally accepted in the United Kingdom which differ in certain respects from
those generally accepted in the United States (see Note 29 of Notes to the
Financial Statements).
[Ernst & Young LLP]
London, England
April 16, 2007
Blackwell Publishing (Holdings) Ltd
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GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 December
Restated Restated
2006 2005 2004
Notes P'000 P'000 P'000
TURNOVER 2 224,158 209,961 190,910
Cost of sales 3 99,673 97,798 92,959
----------- ----------- -----------
Gross profit 124,485 112,163 97,951
Net operating expenses 3 85,138 75,748 67,613
----------- ----------- -----------
OPERATING PROFIT 4 39,347 36,415 30,338
Profit/(loss) on sale of tangible
fixed assets 12 6 (22) 1,757
Profit/(loss) on disposal of
subsidiary undertaking 13(a) 212 - (1,098)
----------- ----------- -----------
PROFIT BEFORE INTEREST,
INVESTMENT INCOME AND TAXATION 39,565 36,393 30,997
Income from investments 14 5 12
Interest receivable and similar income 7 5,294 3,016 1,658
Interest payable and similar charges 7 (11) (10) (8)
Other finance (costs)/income 26(c) (337) 74 39
----------- ----------- -----------
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 44,525 39,478 32,698
Tax on profit on ordinary activities 9 14,593 11,499 9,788
----------- ----------- -----------
PROFIT ON ORDINARY
ACTIVITIES FOR THE YEAR* 29,932 27,979 22,910
=========== =========== ===========
Movements on reserves are set out in note 24.
* A summary of the significant adjustments to profit on ordinary activities
for the year that would be required if United States generally accepted
accounting principles were applied instead of those generally accepted in
the United Kingdom is as set forth in Note 29 of Notes to the Financial
Statements.
P = Pounds Sterling (GBP)
Blackwell Publishing (Holdings) Ltd
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GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December
Restated Restated
2006 2005 2004
P'000 P'000 P'000
Profit on ordinary activities for the year 29,932 27,979 22,910
Exchange differences on retranslation of net assets
of subsidiary undertakings (1,049) 173 125
Actuarial gain/(loss) recognised on defined benefit
pension scheme (see note 26(d)) 3,502 (3,726) (1,768)
Movement on deferred tax relating to pension liability (1,050) 1,118 530
----------- ----------- -----------
Total recognised gains and losses relating to the year 31,335 25,544 21,797
=========== =========== ===========
The statement of comprehensive income required under United States
generally accepted accounting principles is set forth in Note 29 of Notes
to the Financial Statements.
RECONCILIATION OF SHAREHOLDERS' FUNDS
Restated Restated
2006 2005 2004
P'000 P'000 P'000
Total recognised gains and losses 31,335 25,544 21,797
Dividends paid in year (5,121) (3,860) (8,087)
Other movements:
Goodwill reinstated (see note 24) - - 1,425
Share buy back - (8,350) -
Sale of shares by Employee Trusts - 428 839
Purchase of shares by Employee Trusts - (1,488) (12,286)
Reserve credit for share-based payment plans 821 592 44
----------- ----------- -----------
Total movements during the year 27,035 12,866 3,732
Shareholders' funds at 1 January 22,591 9,725 5,993
----------- ----------- -----------
Shareholders' funds at 31 December 49,626 22,591 9,725
=========== =========== ===========
P = Pounds Sterling (GBP)
Blackwell Publishing (Holdings) Ltd
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BALANCE SHEET
at 31 December
Restated
2006 2005
Notes P'000 P'000
FIXED ASSETS
Intangible assets 11 25,500 22,140
Tangible assets 12 7,097 7,643
Investments 13 - 591
----------- -----------
32,597 30,374
----------- -----------
CURRENT ASSETS
Stocks 14 9,172 7,449
Debtors due after one year 15 3,165 3,165
Debtors due within one year 15 40,243 37,667
Cash at bank and in hand 16 93,110 90,719
Short term investment 16(a) 21,641 -
----------- -----------
167,331 139,000
CREDITORS: amounts falling due
within one year 17 141,947 136,831
----------- -----------
NET CURRENT ASSETS 25,384 2,169
----------- -----------
TOTAL ASSETS LESS CURRENT
LIABILITIES 57,981 32,543
----------- -----------
CREDITORS: amounts falling due
after more than one year 18 184 205
PROVISIONS FOR LIABILITIES
AND CHARGES 20 552 1,121
----------- -----------
NET ASSETS EXCLUDING PENSION LIABILITY 57,245 31,217
DEFINED BENEFIT PENSION LIABILITY 26 7,619 8,626
----------- -----------
NET ASSETS 49,626 22,591
=========== ===========
CAPITAL AND RESERVES
Called up share capital 22 540 540
Share premium account 24 179 179
Capital redemption reserve 24 157 157
Reserve for own shares 24 (13,641) (13,641)
Merger reserve 24 (15,711) (15,711)
Profit and loss account 24 78,102 51,067
----------- -----------
Shareholders' funds* 49,626 22,591
=========== ===========
P = Pounds Sterling (GBP)
* A summary of the significant adjustments to shareholder's funds that
would be required if United States generally accepted accounting principles
were applied instead of those generally accepted in the United Kingdom is
as set forth in Note 29 of Notes to the Financial Statements.
Blackwell Publishing (Holdings) Ltd
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GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December
2006 2005 2004
Notes P'000 P'000 P'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 16(b) 46,340 42,934 44,541
----------- ----------- -----------
DIVIDENDS RECEIVED FROM JOINT VENTURES - 19 518
----------- ----------- -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest and similar income received 5,294 3,016 1,658
Interest paid (1) - (2)
Interest element of finance lease rental payments (10) (10) (6)
Dividends received 14 5 12
----------- ----------- -----------
5,297 3,011 1,662
----------- ----------- -----------
TAXATION
Corporation tax paid (9,028) (6,593) (5,735)
Overseas tax paid (4,327) (3,849) (2,966)
----------- ----------- -----------
(13,355) (10,442) (8,701)
----------- ----------- -----------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire intangible fixed assets (7,630) (8,433) (6,675)
Payments to acquire tangible fixed assets (1,657) (2,824) (1,938)
Receipts from sales of tangible fixed assets 21 84 3,584
Sale of shares by employee trusts - 428 839
Purchase of shares by employee trusts - (1,488) (12,286)
Purchase of gilt fund for pension scheme 16(a) (21,641) - -
----------- ----------- -----------
(30,907) (12,233) (16,476)
----------- ----------- -----------
ACQUISITIONS AND DISPOSALS
Sale of subsidiary undertaking 13(a) 803 - 1,108
----------- ----------- -----------
EQUITY DIVIDENDS PAID 10 (5,121) (3,860) (8,087)
----------- ----------- -----------
NET CASH INFLOW BEFORE MANAGEMENT
OF LIQUID RESOURCES AND FINANCING 3,057 19,429 14,565
----------- ----------- -----------
MANAGEMENT OF LIQUID RESOURCES
Increase in short-term deposits (8,306) (24,483) (3,860)
----------- ----------- -----------
FINANCING
Payments to acquire own shares - (8,350) -
Repayment of capital element of finance lease (146) (178) (130)
----------- ----------- -----------
(146) (8,528) (130)
----------- ----------- -----------
(DECREASE)/INCREASE IN CASH 16 (5,395) (13,582) 10,575
=========== =========== ===========
P = Pounds Sterling (GBP)
The significant differences between the cash flow statement presented above
and that required under United States generally accepted accounting
principles are set forth in Note 29 of Notes to the Financial Statements.
Blackwell Publishing (Holdings) Ltd
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GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2006 2005 2004
Notes P'000 P'000 P'000
(Decrease)/increase in cash (5,395) (13,582) 10,575
Cash outflow from change in liquid resources 8,306 24,483 3,860
----------- ----------- -----------
Change in net funds resulting from cash flows 2,911 10,901 14,435
Foreign exchange translation difference (520) 281 (218)
----------- ----------- -----------
MOVEMENT IN NET FUNDS IN THE YEAR 16 2,391 11,182 14,217
NET FUNDS AT 1 JANUARY 16 90,719 79,537 65,320
----------- ----------- -----------
NET FUNDS AT 31 DECEMBER 16 93,110 90,719 79,537
=========== =========== ===========
P = Pounds Sterling (GBP)
Blackwell Publishing (Holdings) Ltd
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NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation and change in accounting policies The financial
statements are prepared under the historical cost convention and in
accordance with applicable UK accounting standards. These financial
statements are not statutory accounts within the meaning of section 240 of
Companies Act 1985 of Great Britain. Statutory accounts for the years ended
31 December 2004 and 2005 on which the auditors' reports were unqualified
have been delivered to the Registrar of Companies for England and Wales. No
statutory accounts for any subsequent period have been prepared. P = Pounds
Sterling (GBP)
Basis of consolidation
The Group financial statements consolidate the financial statements of
Blackwell Publishing (Holdings) Ltd (the `Company') and all of its
subsidiary undertakings (together, the `Group') drawn up to 31 December
each year.
Entities in which the Group holds an interest on a long term basis and are
jointly controlled by the Group and one or more other venturers under a
contractual arrangement are treated as joint ventures. In the Group
financial statements, joint ventures are accounted for using the gross
equity method.
Prior year adjustments
The Group has adopted FRS 20 `Share-based Payment' with effect from 1
January 2006. The adoption of FRS 20 has resulted in a change in accounting
policy for share-based payment transactions. FRS 20 requires the fair value
of options and share awards which ultimately vest to be charged to the
profit and loss account over the vesting or performance period. If an award
fails to vest as the result of certain types of performance condition not
being satisfied, the charge to the profit and loss account will be adjusted
to reflect this.
Previously, the Group recognised only the intrinsic value or cost of the
potential awards for the long-term incentive plans as an expense. The cost
of these awards were accrued over the performance period of each plan based
on the intrinsic value of equity settled awards or the estimated cost of
cash-settled awards, and an adjustment was made to the latter to reflect
the actual costs incurred.
Additional staff costs of P821,000 (2005 - P592,000, 2004 - P44,000) have
been recognised in the profit and loss account. A deferred tax asset of 30%
of these amounts has been recognised in the tax charge.
The provision against investment in own shares of P1,857,000 charged to the
profit and loss account and credited to reserve for own shares in the Group
statutory financial statements for 2004 did not comply with UITF 38 and has
been reversed.
Goodwill and copyrights
Purchased goodwill acquired before 1 January 1998 was set off directly
against reserves and amounts to P10,521,000. Positive goodwill arising on
acquisitions since this date is capitalised, classified as an asset on the
balance sheet and amortised on a straight line basis over its useful
economic life up to a maximum of 20 years. The useful economic life of
goodwill, relating to each acquisition, is determined by the directors with
reference to its expected future contribution.
If a subsidiary, associate or business is subsequently sold or closed, any
goodwill arising on acquisition that was set off directly against reserves
is taken into account in determining the profit or loss on sale.
The purchase cost of copyrights is capitalised and amortised through the
profit and loss account over their expected economic useful lives.
The carrying values of intangible assets are reviewed for impairment at the
end of the first full financial year following their acquisition and in
other periods if events or changes in circumstances indicate that the
carrying value may not be recoverable.
Blackwell Publishing (Holdings) Ltd
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NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES (CONTINUED)
Property, plant and machinery
Property, plant and machinery is stated at cost less accumulated
depreciation and accumulated impairment losses. Such cost includes costs
directly attributable to making the asset capable of operating as intended.
Depreciation is provided on all tangible fixed assets except freehold land,
at rates calculated to write off the cost, less estimated residual value,
of each asset evenly over its expected useful life, as follows:
Freehold buildings - 3 -15 years
Fixtures and fittings and equipment - 3 - 6 years
Motor vehicles - 4 - 5 years
Leasehold property - over the period of the lease
The carrying values of tangible fixed assets are reviewed for impairment in
periods when events or changes in circumstances indicate the carrying
values may not be recoverable.
Provisions for liabilities
A provision is recognised when the Group has a legal or constructive
obligation as a result of a past event and it is probable that an outflow
of economic benefits will be required to settle the obligation and the
amount can be reliably estimated.
Investments
Fixed asset investments are initially recorded at purchased cost and
reviewed for impairment in periods if events or changes in circumstances
indicate the carrying value may not be recoverable.
Stocks
Stocks and work in progress are stated at the lower of cost and net
realisable value. Cost includes all costs incurred in bringing each product
to its present location and condition. Net realisable value is based on
estimated future sales volumes less any further costs expected to be
incurred to completion and sale.
Deferred taxation
Deferred taxation is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date where
transactions or events have occurred at that date that will result in an
obligation to pay more, or right to pay less or to receive more, tax, with
the following exceptions:
o Provision is made for deferred taxation that would arise on remittance
of the retained earnings of subsidiaries, associates and joint
ventures only to the extent that, at the balance sheet date, dividends
have been accrued as receivable.
o Deferred tax assets are recognised only to the extent that the
directors consider that it is more likely than not that there will be
suitable taxable profits from which the future reversal of the
underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which timing differences reverse, based
on tax rates and laws enacted or substantively enacted at the balance sheet
date.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the
date of the transaction, or at the contracted rate if the transaction is
covered by a foreign exchange contract. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange
ruling at the balance sheet date. All differences are taken to the profit
and loss account.
Blackwell Publishing (Holdings) Ltd
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NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES (CONTINUED)
The financial statements of overseas entities denominated in foreign
currencies are translated at the rate of exchange ruling at the Group
balance sheet date. The exchange difference arising on the retranslation of
opening net assets is taken directly to reserves. All other translation
differences are taken to the profit and loss account.
Derivative instruments
The Group uses forward foreign currency contracts to reduce exposure to
foreign exchange rates.
The criteria for forward foreign currency contracts are:
o the instrument must be related to a firm foreign currency
commitment;
o it must involve the same currency as the hedged item; and
o it must reduce the risk of foreign currency exchange movements on
the Group's operations.
Gains and losses arising, where the instrument is used to hedge a committed
future transaction are not recognised in the profit and loss account until
the transaction occurs.
Leasing commitments
Assets held under finance leases and hire purchase contracts, which are
those where substantially all the risks and rewards of ownership of the
asset have passed to the Group, are capitalised in the balance sheet and
are depreciated over their useful lives.
The interest element of the rental obligations is charged to the profit and
loss account over the period of the lease and represents a constant
proportion of the balance of capital repayments outstanding.
Rentals paid under operating leases are charged to the profit and loss
account on a straight line basis over the term of the lease.
Pensions
The Group accounts for pension schemes in accordance with FRS 17
'Retirement Benefits'.
The Group participates, with another employer outside of the Group, in a
defined benefit pension scheme.
For the defined benefit scheme any increase in the present value of the
liabilities expected to arise from employee service in the period is
charged against operating profit and included as part of staff costs. The
interest costs and the expected return on assets are shown as other finance
costs. Actuarial gains and losses are recognised immediately in the
statement of total recognised gains and losses.
Pension scheme assets are measured using market values and liabilities are
measured on an actuarial basis using the projected unit method and
discounted at a rate equivalent to the current rate of return on a high
quality corporate bond of equivalent currency and term to the scheme
liabilities. Actuarial valuations are obtained at least triennially and are
updated at each balance sheet date.
Share-based payments
Equity settled transactions
The cost of equity-settled transactions with employees is measured by
reference to the fair value at the date at which they are granted and is
recognised as an expense over the vesting period, which ends on the date on
which the relevant employees become fully entitled to the award. Fair value
is determined by an appropriate pricing model.
Blackwell Publishing (Holdings) Ltd
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NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES (CONTINUED)
At each balance sheet date before vesting, the cumulative expense is
calculated, representing the extent to which the vesting period has expired
and management's best estimate of the achievement or otherwise of
non-market conditions. The movement in cumulative expense since the
previous balance sheet date is recognised in the profit and loss account,
with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting
period. In addition, an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on
the difference between the fair value of the original award and the fair
value of the modified award, both as measured on the date of the
modification. No reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had
vested on the date of cancellation, and any cost not yet recognised in the
profit and loss account for the award is expensed immediately. Any
compensation paid up to the fair value of the award at the cancellation or
settlement date is deducted from equity, with any excess over fair value
being treated as an expense in the profit and loss account.
The Group has taken advantage of the transitional provisions of FRS 20 in
respect of equity-settled awards so as to apply FRS 20 only to those
equity-settled awards granted after 7 November 2002 that had not vested
before 1 January 2006.
For awards granted before 7 November 2002, the Group recognises only the
intrinsic value or cost of these potential awards as an expense over the
performance period of each plan.
Cash-settled transactions
The cost of cash-settled transactions is measured at fair value using an
appropriate option pricing model. Fair value is established initially at
the grant date and at each balance sheet date thereafter until the awards
are settled. During the vesting period a liability is recognised
representing the product of the fair value of the award and the portion of
the vesting period expired as at the balance sheet date. From the end of
the vesting period until settlement, the liability represents the full fair
value of the award as at the balance sheet date. Changes in the carrying
amount for the liability are recognised in profit and loss account for the
period.
2. TURNOVER
Turnover is attributable to one continuing class of activity, publishing,
stated net of value added tax. Turnover in respect of delivery of
publications is recognised on shipment of the product. Subscription income
is recognised on periodic despatch of the product or otherwise rateably
over the period of subscription. Income is deferred in respect of revenue
received in advance. An analysis of turnover by geographical market is
given below:
2006 2005 2004
P'000 P'000 P'000
United Kingdom 27,900 25,805 25,634
USA 98,328 101,987 89,390
Rest of World 97,930 82,169 75,886
----------- ----------- -----------
224,158 209,961 190,910
=========== =========== ===========
The directors have not provided any additional segmental information as
they believe this is commercially sensitive.
Blackwell Publishing (Holdings) Ltd
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NOTES TO THE FINANCIAL STATEMENTS
3. COST OF SALES AND OPERATING COSTS
Restated
2006 2005 2004
P'000 P'000 P'000
Cost of sales 99,673 97,798 92,959
=========== =========== ===========
Administration costs 71,817 64,440 55,604
Distribution costs 13,382 13,025 12,037
Other operating income (61) (96) (28)
Release of guarantee provision (see note 20) - (1,621) -
----------- ----------- -----------
Net operating expenses 85,138 75,748 67,613
=========== =========== ===========
4. OPERATING PROFIT This is stated after charging:
2006 2005 2004
P'000 P'000 P'000
Auditors' remuneration - Audit of the financial statements 145 206 198
- Other services (UK only) 2 2 14
Amortisation of intangible assets 3,849 2,355 2,080
Impairment of intangible assets - 900 -
Depreciation - owned assets 1,895 1,812 1,876
- leased assets 158 172 123
Operating lease rentals -land and buildings 2,708 2,481 2,272
-other 177 209 201
Exchange rate (gains)/losses (2,189) 624 (702)
=========== =========== ===========
5. STAFF COSTS
2006 2005 2004
P'000 P'000 P'000
Wages and salaries 33,252 30,242 24,833
Share-based payment (note 23) 821 592 44
Social security costs 2,741 2,490 2,217
Other pension costs (note 26) 3,696 3,468 2,222
----------- ----------- -----------
40,510 36,792 29,316
=========== =========== ===========
The average monthly number of employees (including directors) during the
year was made up as follows:
2006 2005 2004
No. No. No.
Management and administration 260 278 311
Production and publishing 784 683 624
----------- ----------- -----------
1,044 961 935
=========== =========== ===========
Blackwell Publishing (Holdings) Ltd
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NOTES TO THE FINANCIAL STATEMENTS
6. DIRECTORS' REMUNERATION
2006 2005 2004
P'000 P'000 P'000
Fees paid to third parties (Rubery Owen Ltd) 20 18 18
Other emoluments 1,694 1,325 1,415
----------- ----------- -----------
1,714 1,343 1,433
=========== =========== ===========
Number of directors who received share options 1 1 -
Number of directors who exercised share options - 2 3
----------- ----------- -----------
Members of defined benefit pension schemes 3 3 3
----------- ----------- -----------
Emoluments of the highest paid director 765 571 588
Total accumulated pension benefits accrued to the highest paid director 4,467 4,159 1,968
=========== =========== ===========
7. INTEREST RECEIVABLE AND SIMILAR CHARGES
2006 2005 2004
P'000 P'000 P'000
Bank interest receivable 3,326 3,016 1,658
Foreign exchange gain 1,968 - -
----------- ----------- -----------
5,294 3,016 1,658
=========== =========== ===========
8. INTEREST PAYABLE AND SIMILAR CHARGES
2006 2005 2004
P'000 P'000 P'000
Interest payable on bank loans and overdrafts 11 10 8
=========== ============ ==========
9. TAX ON PROFIT ON ORDINARY ACTIVITIES
(a) Analysis of charge in year
2006 2005 2004
P'000 P'000 P'000
Current tax:
UK corporation tax on profits of the year 10,732 8,141 6,110
Adjustments in respect of previous periods (321) 692 1,033
----------- ----------- -----------
10,411 8,833 7,143
Foreign tax 4,663 4,042 3,387
----------- ----------- -----------
Total current tax (note 9(c)) 15,074 12,875 10,530
Deferred tax:
Origination and reversal of timing differences (note 21) 138 (1,795) (506)
Timing differences related to pension costs (note 26(a)) (619) 419 (236)
----------- ----------- -----------
Tax on profit on ordinary activities 14,593 11,499 9,788
=========== =========== ===========
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
9. TAX ON PROFIT ON ORDINARY ACTIVITIES (CONTINUED)
(b) Tax included in statement of total recognised gains and losses
The tax charge/(credit) is made up as follows:
2006 2005 2004
P'000 P'000 P'000
Deferred tax:
Actuarial gain/(loss) on defined benefit pension scheme (1,050) 1,118 530
=========== ========== ===========
(c) Factors affecting the current tax charge for the period
Restated
2006 2005 2004
P'000 P'000 P'000
Profit on ordinary activities before taxation 44,525 39,478 32,698
=========== ========== -----------
Profit on ordinary activities multiplied by standard rate of
corporation tax in the UK of 30% (2005 -30%, 2004 - 30%) 13,358 11,843 9,809
Effects of:
Expenses not deductible for tax purposes 879 501 455
Share-based payment charge 246 178 13
Capital allowances in excess of depreciation (113) (300) (564)
Increase/(decrease) in general provisions 106 (819) (47)
Overseas tax rate 919 780 387
Tax (over)/under provided in previous periods (321) 692 477
----------- ---------- -----------
Current tax charge for period (note (9(a)) 15,074 12,875 10,530
=========== ========== ===========
10. DIVIDENDS AND OTHER APPROPRIATIONS
2006 2005 2004
P'000 P'000 P'000
Declared and paid during the year:
Final dividend paid of 108.6p (2004 - 79.3p, 2003 - 67.8p)
per ordinary share 5,578 4,202 3,592
In respect of own shares (457) (342) (126)
Interim dividend paid of nil (2005 - nil, 2004 - 95.0p)
per ordinary share - - 5,031
In respect of own shares - - (410)
----------- ----------- -----------
5,121 3,860 8,087
=========== =========== ===========
Proposed for approval by shareholders at the AGM:
Final dividend proposed of nil (2005 - 108.6p, 2004 - 79.3p)
per ordinary share - 5,578 4,202
In respect of own shares - (457) (342)
----------- ----------- -----------
- 5,121 3,860
=========== =========== ===========
In accordance with FRS 21 'Events after the Balance Sheet Date', dividends
proposed by the directors but not approved at the balance sheet date have
not been recognised as a liability.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
11. INTANGIBLE FIXED ASSETS
Copyrights Goodwill Total
P'000 P'000 P'000
Cost:
At 1 January 2005 20,583 3,413 23,996
Exchange adjustments 186 62 248
Additions 8,433 - 8,433
Disposals (265) - (265)
----------- ----------- -----------
At 31 December 2005 28,937 3,475 32,412
Exchange adjustments (287) (108) (395)
Additions 7,630 - 7,630
Disposals - (149) (149)
----------- ----------- -----------
At 31 December 2006 36,280 3,218 39,498
----------- ----------- -----------
Amortisation:
At 1 January 2005 5,816 1,154 6,970
Exchange adjustments 42 5 47
Impairment 900 - 900
Charge for the year 2,231 124 2,355
----------- ----------- -----------
At 31 December 2005 8,989 1,283 10,272
----------- ----------- -----------
Exchange adjustments (83) (40) (123)
Charge for the year 3,725 124 3,849
----------- ----------- -----------
At 31 December 2006 12,631 1,367 13,998
----------- ----------- -----------
Net book value:
At 31 December 2006 23,649 1,851 25,500
At 31 December 2005 19,948 2,192 22,140
=========== =========== ===========
Goodwill is amortised over useful economic lives of 15 or 20 years.
Copyrights are amortised over their expected useful economic lives of
between 5 and 10 years.
The copyright impairment charge in 2005 relates to a book list purchase
made in April 2004 after an internal review indicated that the carrying
value may not be recoverable.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
12. TANGIBLE FIXED ASSETS
Short-term
Freehold leasehold Vehicles and
property property equipment Total
P'000 P'000 P'000 P'000
Cost:
At 1 January 2005 98 3,831 9,145 13,074
Exchange adjustments 11 26 178 215
Additions 156 647 2,021 2,824
Disposals - (31) (427) (458)
------------ ------------ ----------- -----------
At 31 December 2005 265 4,473 10,917 15,655
Exchange adjustments (31) (30) (319) (380)
Additions - 69 1,588 1,657
Disposals - (12) (332) (344)
------------ ------------ ------------ -----------
At 31 December 2006 234 4,500 11,854 16,588
------------ ------------ ------------ -----------
Depreciation:
At 1 January 2005 5 591 5,643 6,239
Exchange adjustments - 9 132 141
Charge for the year 69 344 1,571 1,984
Disposals - (31) (321) (352)
------------ ------------ ------------ ----------
At 31 December 2005 74 913 7,025 8,012
Exchange adjustments (9) (10) (228) (247)
Charge for the year 73 411 1,569 2,053
Disposals - (10) (317) (327)
------------ ------------ ------------ ----------
At 31 December 2006 138 1,304 8,049 9,491
------------ ------------ ------------ ----------
Net book value:
At 31 December 2006 96 3,196 3,805 7,097
At 31 December 2005 191 3,560 3,892 7,643
============ ============ =========== ===========
The net book value of equipment above includes an amount of P213,543 (2005
- P190,322) in respect of assets held under finance leases.
In 2004 the Group sold freehold property and recorded an exceptional gain
of P1,722,000, there was no tax charge related to this transaction.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
13. INVESTMENTS
Listed Joint Total
investment venture
P'000 P'000 P'000
At 1 January 2005 591 30 621
Disposal - (30) (30)
-------- ------- -------
At 31 December 2005 591 - 591
Disposal (591) - (591)
-------- ------- -------
At 31 December 2006 - - -
======== ======= =======
(a) Investments
In 2004 the Group sold a subsidiary company, Avenue Healthcare Knowledge
Management Ltd to Huntsworth plc in consideration for cash and shares in
Huntsworth plc recording a loss in 2004 of P1,098,000 with no resultant tax
impact. The total value of the shares on acquisition was P591,000 and at
the 2005 year end their quoted market value was P548,000.
As part of the sale agreement deferred consideration in cash and shares of
P250,000 was received in March 2006. The Group disposed of all its
shareholding in Huntsworth plc in September 2006 at a net loss of P37,512,
resulting in net gain of P212,488 during the year with no resultant tax
impact.
A joint venture with Polity Limited was discontinued in 2005.
(b) Other investments
The Group holds other investments in Internet related businesses at a cost
of P2,421,000, which were fully provided against in the 2000 financial
statements due to market conditions.
Principal investments
Details of the principal investments in which the Group holds at least 20%
of the nominal value of any class of share capital are as follows:
Name Country of Holding Proportion Nature
Registration+ Held of Business
Blackwell Publishing Inc. U.S.A. Ordinary 100% Publishing
Blackwell Publishing Ltd Ordinary 100% Publishing
Blackwell Science Ltd Ordinary 100% Publishing
Blackwell Science (Overseas Holdings) Ltd Ordinary 100% Holding
Blackwell Publishers (Trustees) Ltd Ordinary 100% Trustee
Blackwell Publishing Asia Pty. Ltd Australia Ordinary 100% Publishing
Blackwell Publishing Services Singapore Pte. Ltd Singapore Ordinary 100% Services
Blackwell Science (Trustees) Ltd Ordinary 100% Trustee
Blackwell Science (Hong Kong) Ltd Hong Kong Ordinary 100% Publishing
Blackwell Science KK Japan Ordinary 100% Publishing
Blackwell - Verlag GmbH Germany Ordinary 100% Publishing
Ejnar Munksgaard A/S Denmark Ordinary 100% Publishing
ISUP, Inc. U.S.A. Ordinary 100% Publishing
+ (or incorporation and operation) if not Great Britain.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
14. STOCKS
2006 2005
P'000 P'000
Finished stock 6,519 5,288
Work in progress 1,436 1,713
Raw materials 1,217 448
----------- -----------
9,172 7,449
=========== ===========
15. DEBTORS
2006 2005
P'000 P'000
Trade debtors 28,779 23,873
Other taxes recoverable 64 14
Deferred taxation (note 21) 3,280 3,644
Called up and unpaid share capital (note 22) 146 146
Other debtors 1,377 992
Prepayments 6,597 8,998
----------- -----------
40,243 37,667
=========== ===========
The debtors falling due after one year were: 2006 2005
P'000 P'000
Recoverable corporation tax 3,165 3,165
=========== ===========
16. ANALYSIS OF NET FUNDS
Cash at bank Liquid Total
and in hand resources
P'000 P'000 P'000
At 1 January 2004 18,965 46,355 65,320
Cash flow 10,575 3,860 14,435
Exchange movement (214) (4) (218)
------ ------ ------
At 31 December 2004 29,326 50,211 79,537
Cash flow (13,582) 24,483 10,901
Exchange movement 276 5 281
------ ------ ------
At 31 December 2005 16,020 74,699 90,719
Cash flow (5,395) 8,306 2,911
Exchange movement (515) (5) (520)
------ ------ ------
At 31 December 2006 10,110 83,000 93,110
====== ====== ======
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
16. ANALYSIS OF NET FUNDS (CONTINUED)
Liquid resources comprise short term deposits and are included within cash
at bank and in hand in the balance sheet. Included in creditors are finance
lease liabilities totalling P201,000 (2005 - P181,000).
(a) On the 12 October 2006 the Group purchased a gilt fund investment to
the value of P21,641,000 in relation to the proposed segregation of
the pension fund and which was convertible to cash with two days
notice (see note 28).
(b) Reconciliation of operating profit to net cash inflow from operating
activities:
Restated
2006 2005 2004
P'000 P'000 P'000
Operating profit 39,347 36,415 30,338
Amortisation and impairment of intangible assets
- copyrights 3,725 2,231 1,956
- goodwill 124 124 124
- impairment - 900 -
Depreciation 2,053 1,984 1,999
Movement in reserve for share-based payments 821 592 (1,813)
(Increase)/decrease in stocks (1,852) 174 1,148
Decrease/(increase) in debtors 6,885 (1,193) (32)
(Decrease)/increase in creditors (4,893) 1,712 10,019
(Decrease)/increase in provisions (1,597) 2,280 (22)
Difference between pension charge and cash contributions 1,727 (2,285) 824
----------- ----------- -----------
Net cash inflow from operating activities 46,340 42,934 44,541
=========== =========== ===========
17. CREDITORS: amounts falling due within one year
2006 2005
P'000 P'000
Trade creditors 28,575 25,616
Corporation tax 12,211 10,559
Other taxes and social security costs 1,045 931
Finance leases (note 19) 118 66
Other creditors 483 423
Accruals and deferred income 99,515 99,236
------- -------
141,947 136,831
======= =======
18. CREDITORS: amounts falling due after more than one year
2006 2005
P'000 P'000
Finance leases (note 19) 83 115
Other creditors 101 90
------ -----
184 205
====== =====
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
19. OBLIGATIONS UNDER LEASES
Annual commitments under non-cancellable operating leases are as follows:
Land and buildings Other
2006 2005 2004 2006 2005 2004
P'000 P'000 P'000 P'000 P'000 P'000
Operating leases which expire:
Within one year 144 41 146 18 20 45
Between two and five years 777 561 1,019 139 159 166
Over five years 2,218 2,113 1,252 - - -
------ ------ ------ ----- ----- ----
3,139 2,715 2,417 157 179 211
====== ====== ====== ===== ===== ====
Amounts due under finance leases and hire purchase contracts are as
follows:
2006 2005 2004
P'000 P'000 P'000
Amounts payable:
Within one year 127 107 154
In two to five years 88 87 79
------ ------ ------
215 194 233
Less: finance charges allocated to future periods (14) (13) (10)
------ ------ ------
201 181 223
====== ====== ======
Finance leases and hire purchase contracts are analysed as follows:
Current obligations 118 66 147
Non-current obligations 83 115 76
------ ------ ------
201 181 223
====== ====== ======
20. PROVISIONS FOR LIABILITIES AND CHARGES
Guarantee Onerous Total
obligation lease
P'000 P'000 P'000
At 1 January 2005 1,621 1,181 2,802
Released in year - (60) (60)
Reversal of unused amount (1,621) - (1,621)
------- ------- -------
At 31 December 2005 - 1,121 1,121
Released in year (569) (569)
------- ------- -------
At 31 December 2006 - 552 552
------- ------- -------
The Group has made specific provision for the lease commitments for
leasehold property up to 2015 after consideration of sublease income of
P69,000 per annum. The property was vacant from 2003 until 2006 when
subleases were achieved at a rental value below that of the head lease.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
20. PROVISIONS FOR LIABILITIES AND CHARGES (CONTINUED)
In 2000, the Group had underwritten a loan advanced by a financial
institution to a company in which the Group had an investment interest and
it was expected that the Group would be called upon to meet the obligation
and therefore full provision for the liability had been made. In September
2005 the company in which the Group had an investment interest repaid the
loan to the financial institution and the Group was released from its
obligations. Accordingly, the provision has been released and is shown as
an exceptional item within the analysis of operating costs (note 3).
21. DEFERRED TAXATION ASSET
Deferred taxation assets within debtors are analysed as follows:
2006 2005
P'000 P'000
Depreciation in advance of capital allowances 450 563
UK tax timing differences 730 1,052
Share-based payment 437 191
Overseas tax timing differences 1,663 1,838
------ ------
3,280 3,644
====== ======
2006 2005
P'000 P'000
Deferred tax asset at start of year 3,644 1,819
Foreign exchange translation difference (226) 30
Deferred tax credit in profit and loss
account for the year (see note 9(a)) (138) 1,795
------ ------
3,280 3,644
====== ======
22. CALLED UP SHARE CAPITAL
Number of Authorised shares Allotted and partly paid
2006 2005 2004 2006 2005 2004
'000 '000 '000 P'000 P'000 P'000
"A" voting shares of 10p each 255 255 255 24 24 25
"B" restricted voting shares of 10p each 6,000 6,000 6,000 514 514 531
"C" restricted voting shares of 1p each 2,500 2,500 2,500 2 2 2
"G" redeemable restricted voting shares
of 10p each 1,390 1,390 1,390 - - -
-------- -------- -------- -------- -------- --------
10,145 10,145 10,145 540 540 558
======== ======== ======== ======== ======== ========
There is P146,000 (2005 - P146,000, 2004 - P146,000) of allotted and unpaid
capital relating to "C" restricted voting shares of 1p each as determined
in the merger agreement in 2001. There is no other unpaid capital.
During 2005 the parent company purchased from a shareholder 15,000 fully
paid up A shares of 10p each and 160,000 fully paid up B shares of 10p
each. These shares were subsequently cancelled.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
22. CALLED UP SHARE CAPITAL (CONTINUED)
Summary of class rights
Subscriber Shares
Income - the two Subscriber Shares are not entitled to participate in the
profits of the Company.
Capital - upon a winding up or other return of capital (but not upon a
redemption of any share capital in the Company), the holders of Subscriber
Shares are entitled, after the return of the capital paid up on the A
Voting Shares, the B Restricted Voting Shares, the C Restricted Voting
Shares and the G Redeemable Shares, to receive out of the assets of the
Company available for distribution a return of the capital paid up on the
Subscriber Shares. They are not entitled to any further participation in
the assets of the Company.
Voting - the holders of Subscriber Shares have no right to receive notices
of, or to attend or vote at, general meetings of the Company.
A Voting Shares
Income - the A Voting Shares are not entitled to participate in the profits
of the Company.
Capital - upon a winding-up or other return of capital (but not upon a
redemption of any share capital in the Company), the holders of the A
Voting Shares are entitled, after a return of the capital paid up on the B
Restricted Voting Shares, the C Restricted Voting and the G Redeemable
Shares, to receive out of the assets available for distribution a return of
the capital paid up on the A Voting Shares. They are not entitled to any
further participation in the assets of the Company.
Voting - the holders of A Voting Shares are entitled to receive notice of,
and attend and vote at, all general meetings of the Company. Each holder of
A Voting Shares has, on a show of hands, one vote and, on a poll, one vote
for every A Voting Share of which he is the holder.
B Restricted Voting Shares
Income - subject to the provisions referred to below relating to the C
Restricted Voting Shares, the profits of the Company are available for
distribution, at the discretion of the Company, to the holders of B
Restricted Voting Shares, C Restricted Voting Shares and G Redeemable
Shares pari passu, pro rata to the nominal value of such shares held and to
the amount paid up on the relevant shares on the record date for the
payment of the relevant dividend.
Capital - upon a winding-up or other return of capital (but not upon a
redemption of any share capital in the Company), the holders of the B
Restricted Voting Shares and the G Redeemable Shares are entitled to
receive out of the assets of the Company available for distribution, in
priority to the holders of C Restricted Voting Shares, A Voting Shares and
Subscriber Shares, a return of the capital paid up on those shares. After
payment in full to the holders of the C Restricted Voting Shares, the A
Voting Shares and the Subscriber Shares of the capital paid up on those
shares, the holders of B Restricted Voting Shares, C Restricted Voting
Shares and G Redeemable Shares are entitled to receive the balance of the
assets available for distribution, in proportion to the nominal value of
such shares held by each of them and to the extent to which each of such
shares has been fully paid up.
Voting - the holders of B Restricted Voting Shares have no right to receive
notices of, or to attend or vote at, general meetings of the Company unless
the business of the meeting includes a resolution to wind up the Company or
to reduce the share capital, share premium account or capital redemption
reserve of the Company. When entitled to vote, each holder of B Restricted
Voting Shares has, on a show of hands, one vote and, on a poll, one vote
for every B Restricted Voting Share of which he is the holder.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
22. CALLED UP SHARE CAPITAL (CONTINUED)
C Restricted Voting Shares
Income - subject to what is said in the next two sentences, the profits of
the Company are available for distribution, at the discretion of the
Company, to the holders of B Restricted Voting Shares, C Restricted Voting
Shares and G Redeemable Shares pari passu, pro rata to the number of such
shares held and to the amount paid up on the relevant shares on the record
date for the payment of the relevant dividend. A holder of C Restricted
Voting Shares has no entitlement to any dividend until the ninth
anniversary of the date of issue of the relevant shares. This restriction
will, however, lapse upon a sale of A Voting Shares or B Restricted Voting
Shares pursuant to a general offer which results in a person holding more
than 50 per cent of the A Voting Shares or the B Restricted Voting Shares
or upon a listing of any of the Company's shares.
Capital - upon a winding-up or other return of capital (but not upon a
redemption of any share capital in the Company), the holders of the C
Restricted Voting Shares are entitled to receive out of the assets of the
Company available for distribution, in priority to the holders of A Voting
Shares and Subscriber Shares, a return of the capital paid up on such
shares. After payment in full to the holders of A Voting Shares and
Subscriber Shares of the capital paid up on those shares, the holders of B
Restricted Voting Shares, C Restricted Voting Shares and G Redeemable
Shares are entitled to receive the balance of the assets available for
distribution, in proportion to the number of such shares held by each of
them to the extent to which each of such shares has been fully paid up.
Voting - until the ninth anniversary of their issue or until this
restriction is lifted upon a sale or listing as described above, a holder
of a C Restricted Voting Share will have no voting rights in respect of
that share. Thereafter C Restricted Voting Shares will carry the same
voting rights as the like number of B Restricted Voting Shares.
Executive share option schemes established by subsidiaries
Blackwell Science Ltd and Blackwell Publishing Ltd established some years
ago share option schemes for their directors and other senior employees,
under which options to acquire C Restricted Voting Shares in the relevant
Company could be granted. Options under the schemes were generally
exercisable between three and seven years after the date of grant.
The options granted under the Blackwell Science Ltd Executive Share Option
Scheme were options over "C" (restricted voting) shares in Blackwell
Science Ltd. After a Scheme of Arrangement became effective in June 2001,
the Company offered to all holders of options granted under the Scheme the
opportunity to exchange their options over "C" (restricted voting) shares
in Blackwell Science Ltd for options over "B" (restricted voting) shares in
the Blackwell Publishing Ltd at the rate of 0.9 "B" (restricted voting)
shares for every one "C" (restricted voting) share. Not all of the holders
of options granted under the Scheme accepted this offer but under the
Articles of Association of Blackwell Science Ltd the Company is able to
acquire any "C" (restricted voting) shares issued by Blackwell Science Ltd
following the exercise of an option in consideration of the issue of "B"
(restricted voting) shares at the rate referred to above.
Options subsisting at the year end (with a vesting period of seven to ten
years) as adjusted for the Scheme of Arrangement were as follows:
No. of Option Period when
Share Class shares price P exercisable
Blackwell Publishing (Holdings) Ltd
"B" (restricted voting) shares of 10p each 2,250 4.52 2002 - 2007
2,250 4.52 2003 - 2007
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
22. CALLED UP SHARE CAPITAL (CONTINUED)
The options granted under the Blackwell Publishing Ltd Executive Share
Option Scheme were options over "C" (restricted voting) shares in Blackwell
Publishing Ltd. After a Scheme of Arrangement became effective in June
2001, the Company offered to all holders of options granted under the
Scheme the opportunity to exchange their options over "C" (restricted
voting) shares in Blackwell Publishing Ltd for options over "B" (restricted
voting) shares in the Blackwell Publishing (Holdings) Ltd at the rate of
31.4293 "B" (restricted voting) shares for every 1 "C" (restricted voting)
share. All the holders of options granted under the Scheme accepted this
offer.
No. of Option Period when
Share Class shares price P exercisable
Blackwell Publishing (Holdings) Ltd
"B" (restricted voting) shares of 10p each 20,972 6.73 2003 - 2007
Grant of Options by Employee Trusts
Both the trustee of the Blackwell Science Ltd Employee Trust and the
trustee of the Blackwell Publishing Employee Trust have granted options
over "B" (Restricted Voting) Shares held by them.
No. of Option Period when
Share Class shares price P exercisable
Blackwell Publishing (Holdings) Ltd
"B" (restricted voting) shares of 10p each 29,500 8.31 2004 - 2009
Parent Company Employee Share Option Schemes
Blackwell Publishing (Holdings) Limited has established two share option
schemes for employees of Group companies.
One scheme was approved by the Inland Revenue pursuant to the Income Tax
(Earnings and Pensions) Act 2003. The other scheme was not. Options were
granted under these schemes in December 2004 and May and August 2005.
Options subsisting at the year end (with a vesting period of seven to ten
years under the two schemes were as follows:-
Inland Revenue Approved Scheme
No. of Option Period when
Share Class shares price P exercisable
Blackwell Publishing (Holdings) Ltd
"B" (restricted voting) shares of 10p each 27,714 33.52 2008 - 2014
1,814 33.07 2009 - 2015
18,444 38.53 2010 - 2016
Unapproved Scheme
No. of Option Period when
Share Class shares price P exercisable
Blackwell Publishing (Holdings) Ltd
"B" (restricted voting) shares of 10p each 94,431 33.52 2008 - 2014
19,093 33.07 2009 - 2015
40,791 38.53 2010 - 2016
Blackwell Publishing (Holdings) Ltd
"B" (restricted voting) shares of 10p each 94,431 33.52 2009 - 2014
19,093 33.07 2010 - 2015
40,791 38.53 2010 - 2016
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
23. SHARE-BASED PAYMENTS
Certain employees participate in the share option schemes and are granted
share options with a vesting period of seven to ten years.
The following table illustrates the number and weighted average exercise
prices (WAEP) of, and movements in, share options during the year.
2006 2006 2005 2005 2004 2004
No. WAEP No. WAEP No. WAEP
Outstanding as at 1 January 315,548 P28.91 330,298 P24.91 257,123 P7.28
Granted during the year 102,775 P38.53 40,000 P33.07 220,576 P33.52
Forfeited during the year (6,750) P35.56 - - (1,080) P5.89
Exercised during the year - - (54,750) P7.81 (146,321) P7.04
---------- ---------- --------
Outstanding as at 31 December 411,573 P31.20 315,548 P28.91 330,298 P24.91
========== ========== ========
Exercisable at 31 December 54,972 P7.40 54,972 P7.40 39,222 P6.33
========== ========== ========
Included within the exercisable balance are options over 54,972 (2005 -
54,972, 2004 - 109,722) shares that have not been accounted for in
accordance with FRS 20 as the options were granted on or before 7 November
2002. These options have not been subsequently modified and therefore do
not need to be accounted for in accordance with FRS 20.
The weighted average fair value of options granted during the year was
P38.53 (2005 - P33.07, 2004 - P33.52). The range of exercise prices for
options outstanding at the end of the year was P4.52 - P38.53 (2005 - P4.52
- P33.52, 2004 - P4.52 - P33.52).
The expense recognised in the profit and loss account under FRS 20 in
respect of employee services received during the year to 31 December 2006
is P821,000 (2005 - P592,000, 2004 - P44,000).
The fair value of share options granted is estimated as at the date of
grant using the Black-Scholes model, taking into account the terms and
conditions upon which the options were granted, the non-voting nature of
the `B' shares and the predominant holding by a few shareholders.
The following table lists the inputs to the model used for the years ended
31 December 2006, 2005 and 2004.
2006 2005 2004
Dividend yield (%) 3.28 3.28 5.20
Expected share price volatility (%) 33.42 36.43 37.19
Historical volatility (%) 33.42 36.43 37.19
Expected comparator group volatility (%) 33.42 36.43 37.19
Risk-free interest rate (%) 4.61 4.32 4.77
Expected life of option (years) 6 6 6
Weighted average share price P38.53 P33.07 P33.52
The expected life of the options is based on historical data and is not
necessarily indicative of exercise patterns that may occur. The expected
volatility (based on listed competitor market prices) reflects the
assumption that the historical volatility is indicative of future trends,
which may also not necessarily be the actual outcome.
No other features of options granted were incorporated into the measurement
of fair value.
In January 2007 (see note 28) all options vested as Court approval for the
acquisition by Wiley Europe Investment Holdings Ltd was granted, and all
shares held by the Trusts were sold to Wiley Europe Investment Holdings
Ltd.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
24. MOVEMENT IN SHARE CAPITAL AND RESERVES
Restated Restated
Reserve Capital Profit and
Share Share Merger for own redemption loss
capital premium reserve shares reserve account
P'000 P'000 P'000 P'000 P'000 P'000
At 1 January 2004 558 179 (15,711) (1,134) 139 21,962
Exchange differences on translation
of net assets of the group - - - - - 125
Profit for the year - - - - - 22,910
Actuarial loss - - - - - (1,238)
Dividends paid - - - - - (8,087)
Share-based payment - - - - - 44
Sale of shares by Employee
Share Option Trusts - - - 839 - -
Purchase of shares by Employee
Share Option Trusts - - - (12,286) - -
Goodwill reinstated on
disposal of asset - - - - - 1,425
------ ------ -------- -------- ------ ------
At 31 December 2004 558 179 (15,711) (12,581) 139 37,141
Exchange differences on translation
of net assets of the group - - - - - 173
Profit for the year - - - - - 27,979
Actuarial loss - - - - - (2,608)
Dividends paid - - - - - (3,860)
Buy back of shares (18) - - - 18 (8,350)
Share-based payment - - - - - 592
Sale of shares by Employee
Share Option Trusts - - - 428 - -
Purchase of shares by Employee
Share Option Trusts - - - (1,488) - -
------ ------ -------- -------- ------ ------
At 31 December 2005 540 179 (15,711) (13,641) 157 51,067
Exchange differences on translation
of net assets of the group - - - - - (1,049)
Profit for the year - - - - - 29,932
Actuarial gain - - - - - 2,452
Dividends paid - - - - - (5,121)
Share-based payment - - - - - 821
------ ------ -------- -------- ------ ------
At 31 December 2006 540 179 (15,711) (13,641) 157 78,102
====== ====== ======== ======== ====== ======
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
24. MOVEMENT IN SHARE CAPITAL AND RESERVES (CONTINUED)
The cumulative amount of goodwill and intangible assets written off to
group reserves between 31 December 1989 and 31 December 1998, net of
goodwill relating to undertakings disposed of, is P10,521,000 (2005 -
P10,521,000, 2004 - 10,521,000). The reduction of P1,425,000 in 2004
represents goodwill written off to the profit and loss account in the year
due to the disposal of an investment in a subsidiary undertaking.
25. FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES
The Group has guaranteed payment of amounts due by Marston Book Services
Ltd, formerly its joint venture Company, in respect of non-payment rental
agreements amounting to P447,000 per annum until September 2010 (2005 -
P447,000, 2004 - P447,000).
The Group has a commitment to pay P3,005,000 in legal and professional fees
and a further commitment to pay P11,500,000 to the new pension scheme (see
note 28) contingent on the acquisition of the Group by Wiley Europe
Investment Holdings Ltd which was completed in February 2007. Also
contingent on the acquisition was the payment of P21,641,000 to the
Blackwell Ltd Pension Fund (see note 28).
26. PENSION PROVISIONS AND ARRANGEMENTS
The Group's main pension commitments are in the UK, where the Group
participates jointly and severally in the Blackwell's Pension Fund. This
scheme exists to provide pension benefits to UK employees of the Blackwell
Publishing (Holdings) Ltd group, together with the Blackwell Ltd group. The
scheme is a defined benefit scheme funded by the payment of contributions
to a separately administered trust fund providing benefits for the
employees of Blackwell Publishing (Holdings) Ltd and Blackwell Ltd and
their UK subsidiaries based on the average of the three highest years
pensionable pay in the ten years prior to retirement. The assets of the
scheme are held separately from those of the companies, being invested via
fund managers under the control of the scheme's trustees. Contributions to
the scheme are assessed in accordance with the advice of professionally
qualified actuaries. The scheme was closed to new entrants with effect from
1 January 2006.
The Group's pension costs are analysed as follows:
2006 2005 2004
P'000 P'000 P'000
Amount charged to operating profit (see note 26(b)) 3,409 4,137 1,981
Prior years' provision release - (963) -
Overseas subsidiaries' schemes 287 294 241
------- ------- -------
Charge to operating profit (see note 5) 3,696 3,468 2,222
Surplus of the expected return on pension scheme assets over
the interest on pension scheme liabilities and credited to other
finance income. 337 (74) (39)
------- ------- -------
4,033 3,394 2,183
======= ======= =======
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
26. PENSION PROVISIONS AND ARRANGEMENTS (CONTINUED)
(a) Composition of the scheme
The Group operates a defined benefit scheme in the UK in which the UK
trading subsidiary, Blackwell Publishing Limited, is one of the
participating employers. This disclosure relates solely to Blackwell
Publishing Limited as advised by the qualified independent actuary, Aon
Consulting.
The share of the assets of the Fund applicable to Blackwell Publishing
Limited has been calculated in proportion to the liabilities as at the
actuarial valuation at 1 April 2005, and updated to 31 December 2006.
2006 2005 2004
% % %
Rate of increase in salaries 4.90 4.65 4.65
Rate of increase to pensions in payment accrued before 6 April 1997 2.80 2.70 2.70
Rate of increase to pensions in payment accrued after 5 April 1997 2.80 2.70 2.70
Rate of increase of deferred pensions 3.00 2.90 2.90
Discount rate 5.30 4.80 5.30
Inflation assumption 3.00 2.90 2.90
The Blackwell Publishing Limited contributions during the accounting period
amounted to P1,682,000 and the agreed Company contribution rate for the
2006 year is 10.65% of pensionable salaries.
The Fund was closed to new entrants on 1 January 2006 so the average age of
the membership is expected to increase over time. Because the projected
unit method is used to calculate the current service cost, it is expected
that the current service costs will increase as the members of the Fund
approach retirement.
The assets in the scheme and the expected rate of return were:
Long-term Long-term Long-term
rate of return rate of return rate of return
expected at Value at expected at Value at expected at Value at
31 December 31 December 31 December 31 December 31 December 31 December
2006 2006 2005 2005 2004 2004
% P'000 % P'000 % P'000
Equities 7.50 33,100 7.80 22,101 8.00 18,849
Bonds 5.30 12,300 4.80 13,222 5.40 11,566
Other 5.00 400 4.50 5,264 5.00 823
---------- ---------- ----------
Total market value of assets 45,800 40,587 31,238
Present value of scheme liabilities (56,685) (52,910) (41,231)
---------- ---------- ----------
Deficit in the scheme (10,885) (12,323) (9,993)
Related deferred tax asset 3,266 3,697 2,998
---------- ---------- ----------
Net pension liability (7,619) (8,626) (6,995)
========== ========== ==========
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
26. PENSION PROVISIONS AND ARRANGEMENTS (CONTINUED)
(b) Analysis of the amount charged to operating profit
2006 2005 2004
P'000 P'000 P'000
Current service cost 3,409 2,365 1,981
Past service cost - 1,772 -
-------- -------- --------
Total operating charge 3,409 4,137 1,981
======== ======== ========
(c) Analysis of the amount credited to interest receivable
2006 2005 2004
P'000 P'000 P'000
Expected return on pension scheme assets 2,285 2,274 2,026
Interest on pension scheme liabilities (2,622) (2,200) (1,987)
------- ------- -------
Net return (337) 74 39
======= ======= =======
(d) Analysis of the amount recognised in Statement of Total Recognised Gains
and Losses (STRGL) before related deferred tax
2006 2005 2004
P'000 P'000 P'000
Actual return less expected return on pension scheme assets 1,230 1,933 (158)
Experience (loss)/gain arising on the scheme liabilities 1,728) (13) 243
Gain/(loss) arising from changes in assumptions underlying
the scheme liabilities 4,000 (5,646) (1,853)
------- ------- -------
Actuarial gain/(loss) recognised in the STRGL 3,502 (3,726) (1,768)
======= ======= =======
(e) Movements in deficit during the year
2006 2005 2004
P'000 P'000 P'000
Deficit in scheme at beginning of the year (12,323) (9,993) (7,440)
Movement in year:
Current service cost (3,409) (2,365) (1,981)
Contributions 1,682 5,459 1,157
Past service costs - (1,772) -
Other finance (expense)/income (337) 74 39
Actuarial gain/(loss) 3,502 (3,726) (1,768)
---------- --------- -------
Deficit in scheme at the end of the year (10,885) (12,323) (9,993)
========== ========= =======
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
26. PENSION PROVISIONS AND ARRANGEMENTS (CONTINUED)
(f) History of experience gains and losses
2006 2005 2004
Difference between the expected and actual return
on scheme assets:
Amount (P000) 1,230 1,933 (158)
Percentage of scheme assets 3% 5% (1%)
Experience loss on scheme liabilities:
Amount (P000) (1,728) (13) 243
Percentage of present value of the scheme liabilities (3%) 0% 1%
Total amount recognised in the statement of total recognised
gains and losses:
Amount (P000) 3,502 (3,726) (1,768)
Percentage of present value of the scheme liabilities 6% (7%) (4%)
Certain of the Group's subsidiary companies in the USA and Australia
operate their own independent defined contribution pension and
superannuation plans. The assets of these schemes are held in separately
administered funds. All contributions owing at the year end 2006, 2005 and
2004 have been paid and there are no contingent liabilities in respect of
the schemes.
27. TRANSACTIONS WITH RELATED PARTIES
Blackwell Publishing Limited, a subsidiary company, sold books and journals
in the normal course of trading on an arm's length basis totalling
P1,198,958 (2005 - P1,310,000, 2004 - P1,794,000) to Blackwell Ltd.
Blackwell Ltd is a company related through common shareholders.
In 2005, Blackwell Publishing (Holdings) Ltd purchased back issued shares
from Blackwell Ltd for a consideration of P8,350,000. These shares were
subsequently cancelled.
In 2004, the Blackwell Publishing Employee Share Option Trust purchased
280,000 Blackwell Publishing (Holdings) Ltd `B' (restricted voting) shares
from 40 existing shareholders for a total consideration of P8,680,000.
28. POST BALANCE SHEET EVENTS
On 17 November 2006, John Wiley & Sons, Inc. announced that it had entered
into a Definitive Agreement to acquire all of the shares of Blackwell
Publishing (Holdings) Ltd. The acquisition took place within the structure
of a "Scheme of Arrangement" under section 425 of the Companies Act 1985
and was approved by the High Court in England and Wales on 31 January 2007.
The authorised share capital was reduced from P789,615 to P250,064 and the
issued share capital was cancelled and extinguished. The authorised share
capital was then increased to its former amount and new shares in the same
proportions as the cancelled shares issued to Wiley Europe Investment
Holdings Ltd. On 2 February 2007 Blackwell Publishing (Holdings) Ltd was
registered as a subsidiary company of Wiley Europe Investment Holdings Ltd.
One of the conditions of the Definitive Agreement was that Blackwell
Publishing Ltd would exit as a participating employer from the Blackwell's
Pension Fund (which was shared with Blackwell Limited - an independent
company operating bookshops, which was not part of the acquisition) by way
of an "Approved Withdrawal Arrangement" (AWA). Under the AWA, the accrued
benefits of Blackwell Publishing Ltd members of the Blackwell's Pension
Fund are to be transferred to a new pension scheme together with the
related pension assets and liabilities from the Blackwell's Pension Fund.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
28. POST BALANCE SHEET EVENTS (CONTINUED)
The terms of the AWA agreed with the Trustees of the Blackwell's Pension
Fund and The Pension Regulator required a payment of P21,641,000 into the
Blackwell's Pension Fund within 14 days after the Effective date of the
Scheme of Arrangement. The actuary for the Blackwell's Pension Fund Scheme
calculated the sum required to be paid to secure the AWA by reference to a
15-year index linked gilt investment portfolio. In order to eliminate the
risk of the cash value of the payment increasing from any subsequent fall
in gilt yields, Blackwell Publishing purchased an investment in gilts
amounting to P21,641,000 on 12 October 2006, and these were transferred to
the Blackwell's pension fund on 14 February 2007. (Note 16(a))
Following the transfer of the assets and liabilities to the new scheme,
Blackwell Publishing Ltd will make a further payment into the new scheme of
P11,500,000 in order to `top up' the new scheme to a fully funded position
as based on an estimated FRS 17 computation made by the actuary as at 31
August 2006.
Blackwell Publishing Group had a number of share option schemes in place
for the benefit of employees. These options became exercisable as a result
of the acquisition. The participants of the option schemes received payment
for their options exercised in early February and the employee share option
trusts were able to sell the shares to Wiley Europe Investment Holdings Ltd
as part of the acquisition agreement.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
29. US GAAP RECONCILIATION
Differences between accounting principles generally accepted in the United
Kingdom and the United States
(a) Profit for the year, total recognised gains and losses and
shareholders' funds
The following table reconciles profit for the year in accordance with UK
GAAP to consolidated net income for the year that would have been reported
had the financial statements been prepared in accordance with US GAAP:
For the year ended 31 December: 2006 2005
P'000 P'000
Profit for the year in accordance with UK GAAP 29,932 27,979
Impairment of intangible assets (i) (791) 900
Amortisation of intangible assets (i) (109) -
Goodwill amortisation (ii) 125 101
Accounting for rent free period on leases (iii) (117) (105)
Onerous lease provision (iv) (584) (21)
Derivative financial instruments (v) (252) 506
Translation adjustment (vi) 267 (331)
Share-based payments (vii) - 592
Pensions (viii) (410) 1,409
Taxation effect of the above adjustments (ix) 679 (984)
--------- ---------
Net income in accordance with US GAAP 28,740 30,046
========= =========
The following table presents comprehensive income under US GAAP:
For the year ended 31 December: 2006 2005
P'000 P'000
Net income in accordance with US GAAP 28,740 30,046
Other comprehensive income:
Exchange difference on retranslation of net assets of subsidiary undertakings (1,173) 600
--------- ---------
Comprehensive income in accordance with US GAAP 27,567 30,646
========= =========
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
29 US GAAP RECONCILIATION (CONTINUED)
The following table reconciles shareholders' funds in accordance with UK
GAAP to stockholders' equity that would have been reported had the
financial statements been prepared in accordance with US GAAP:
At 31 December:
2006 2005
P'000 P'000
Shareholders' funds in accordance with UK GAAP 49,626 22,591
Other intangible assets
Copyrights (i)
Cost (791) -
Amortisation 791 900
----------- -----------
Net - 900
----------- -----------
Pensions (viii) - 2,911
Goodwill (ii)
Cost 3,057 2,873
Amortisation 1,367 1,283
----------- -----------
Net 4,424 4,156
Debtors: Other debtors (v) - 382
Debtors: Unpaid share capital (ix) (146) (146)
Creditors: Amounts falling due within one year (v) - (130)
Creditors: Amounts falling due after more than one year:
Leases (iii) (712) (595)
Provision for liabilities and charges: Onerous lease (iv) 109 693
Defined benefit pension liability (viii) - 6,256
Taxation effect on above adjustments 181 (3,125)
----------- -----------
Stockholders' equity in accordance with US GAAP 53,482 33,893
=========== ===========
(i) Impairment of Intangible Assets
Under UK GAAP, the impairment of an intangible asset is measured by
comparing the value of the income generating unit under review to the
expected future discounted cash flows of the unit.
Under US GAAP, the carrying amount of a long-lived asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the asset. An impairment loss is
measured as the amount by which the carrying amount of a long-lived asset
exceeds its fair value calculated on the basis of discounted cash flows.
At 31 December 2005, an impairment was recorded for UK GAAP that was not
required for US GAAP as the undiscounted cash flows expected from the use
of the asset exceeded the carrying value. The impairment was therefore
reversed for US GAAP at 31 December 2005, which resulted in higher
amortisation during 2006. At 31 December 2006, an impairment was recorded
for US GAAP, which results in the net book value of the asset being the
same for both UK and US GAAP. Under UK GAAP, impairment is reflected as
additional amortisation, whereas under US GAAP impairment is reflected as a
reduction of cost.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
29. US GAAP RECONCILIATION (CONTINUED)
(ii) Goodwill
Under UK GAAP, goodwill arising on acquisitions made prior to January 1998
has been eliminated against shareholder's funds. Goodwill on acquisitions
made after 1 January 1998 is capitalised and amortised over its useful life
up to a maximum of 20 years.
Under US GAAP, goodwill is not amortised for accounting periods beginning
after 15 December 2001. Goodwill is tested for impairment on an annual
basis at the reporting unit level. Prior to this date, goodwill was
amortised over its useful life to a maximum of 40 years.
(iii) Lease Incentives
Under UK GAAP, any lease incentive is recognised on a straight-line basis
over the period to the first review date to match the effect of the
increased rentals payable in later periods.
Under US GAAP, lease incentives are recognised on a straight-line basis
over the term of the lease. For certain of the Group's leases, there is a
rent review date whereby lease payments can be adjusted for increases in
the market rates and therefore the timing of the incentive recognition is
different under UK GAAP and US GAAP.
(iv) Onerous Lease
Under UK GAAP, provisions for vacated properties accounted for as operating
leases are decreased by future sublease income. There is not a requirement
to reduce the provision by an estimate of future benefits arising from
sublease arrangements that have not yet been secured. When property is
sublet, the provision is adjusted accordingly.
Under US GAAP, a liability for costs that will continue to be incurred
under a contract for its remaining term without economic benefit to the
entity is recognised and measured at its fair value when the entity ceases
using the right conveyed by the contract. The fair value of the liability
at the cease-use date is determined based on the remaining lease rentals,
reduced by estimated sublease rentals that could be reasonably obtained for
the property, even if the entity does not intend to enter into a sublease.
For US GAAP, the Group reduced its liability by estimated sublease rentals
and changes in estimates of cash flows are included in net income in the
period of change. During 2006, a sublease tenant was signed and therefore
the estimated future cash flows at 31 December 2006 were the same for UK
GAAP and US GAAP.
(v) Derivative Financial Instruments
Under UK GAAP, gains and losses on foreign currency forward contracts are
only recorded in the profit and loss account when realised.
Under US GAAP, all derivatives are recorded on the balance sheet at fair
value. The Group has not designated its derivatives as hedging instruments
for the purposes of US GAAP and therefore changes in the fair value of
foreign currency forward contracts are recorded in the profit and loss
account for each reporting period.
(vi) Translation Adjustments
Under UK GAAP, the profit and loss account of a foreign enterprise is
translated at the closing rate or at an average rate for the period. The
Company has used the closing rate.
Under US GAAP, the average rate for the year is used to translate the
profit and loss accounts of foreign subsidiaries.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
29. US GAAP RECONCILIATION (CONTINUED)
(vii) Share-based Payments
Under UK GAAP, an entity is required to reflect in its profit or loss and
financial position the effects of share-based payment transactions,
including expenses associated with transactions in which share options are
granted to employees, for the first year ended after 15 December 2006.
Prior to this date, no expense was recorded as all options were granted to
employees at the intrinsic value, which is nil at grant date.
Under US GAAP, starting with fiscal years that begin after June 15, 2005,
the cost of employee stock options is expensed based on the grant-date fair
value of the award. The cost is recognised over the period over which the
employee renders the service, usually the vesting period. Prior to this
date, options were accounted for based on their intrinsic value. As all
options were granted to employees with no intrinsic value at the grant
date, no expense was recognised.
The transitional provisions for the adoption of FRS 20 under UK GAAP are
different from the transitional provisions for the adoption of FAS 123(R)
under US GAAP. For an unlisted entity, UK GAAP requires options expense to
be recognised for all options granted after 7 November 2002 and not yet
vested at 1 January 2006. It also requires the entity to restate
comparative information and, where applicable, adjust the opening balance
of retained earnings for the earliest period presented. For US GAAP, the
Company has adopted the modified prospective approach for FAS 123(R), which
requires entities to recognise options expense for all new awards, and
awards modified, repurchased, or cancelled after 15 December 2005.
Additionally, compensation cost for the portion of awards which have not
vested as of 1 January 2006 is recognised. Therefore, expense recognised
for UK GAAP prior to 1 January 2006 as a result of the transitional
provisions has been reversed for US GAAP. The Company did not issue any
options prior to 7 November 2002 that were not vested at 1 January 2006.
(viii) Pensions
Under UK GAAP, any increase in the present value of the liabilities of the
Company's defined benefit scheme expected to arise from employee service in
the period is charged against operating profit and included as part of
staff costs. The interest costs and the expected return on assets are shown
as a net amount of other finance costs or credits adjacent to interest.
Actuarial gains and losses are recognised immediately in the statement of
total recognised gains and losses. Actuarial valuations are obtained at
least triennially and are updated at each balance sheet date.
Under US GAAP, actuarial gains and losses that exceed 10% of the greater of
the obligation and assets are amortised over the remaining service period
of employees on a straight-line basis. In addition, following the early
adoption of FAS 158 as at 31 December 2006, the deficit on the defined
benefit scheme is recognised in accumulated other comprehensive income in
stockholder's equity at that date. Prior to the adoption of FAS 158, where
the value of plan assets was below the value of liabilities valued on an
accumulated benefit obligation basis, a minimum pension liability was
recognised through intangible assets to the extent of the unrecognised
transitional obligation and prior service costs.
(ix) Unpaid share capital
Under UK GAAP, unpaid capital relating to certain restricted voting shares
is recorded as a debtor. Under US GAAP, the unpaid capital relating to
these shares is recorded as a reduction of equity.
(x) Under UK GAAP, the profit/loss on the sale of tangible fixed assets and
the disposal of subsidiary undertaking are presented as non-operating
exceptional items. Under US GAAP, these are presented as a component of
operating income.
Blackwell Publishing (Holdings) Ltd
---------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
29. US GAAP RECONCILIATION (CONTINUED)
(b) Cash flows
The categories of cash flow activity under US GAAP can be summarised as
follows:
For the year ended 31 December: 2006 2005
P'000 P'000
Cash inflow from operating activities 34,158 30,174
Cash outflow from investing activities (30,048) (12,300)
Cash outflow from financing activities (157) (8,519)
----------- -------------
Increase in cash and cash equivalents 3,953 9,355
Effect of foreign exchange adjustment (1,562) 1,827
Cash and cash equivalents at the start of the year 90,719 79,537
----------- -------------
Cash and cash equivalents at the end of the year 93,110 90,719
The consolidated statement of cash flows prepared under UK GAAP presents
substantially the same information as that required under US GAAP but
differs with regard to the classification of items within the statement.
Under UK GAAP, the cash flows of a foreign enterprise are translated at the
closing rate or at an average rate for the period. The Company has used the
closing rate. Under US GAAP, the average rate for the year is used to
translate the cash flows of foreign subsidiaries.
Under US GAAP, cash and cash equivalents for cash flow purposes include
short-term liquid resources. Under UK GAAP, short term liquid resources are
excluded form the cash flow statement. Under US GAAP, dividends received
and interest income are presented as operating cash flow while they are
considered investing cash flow under UK GAAP. Under UK GAAP, taxes and
equity dividend paid are presented as a separate class of items while they
are considered operating cash flows under US GAAP.
Exhibit 99.2
Unaudited Pro Forma Condensed Combined Financial Statements
Effective February 2, 2007, John Wiley & Sons, Inc., through its subsidiary
Wiley Europe Investment Holdings (collectively "Wiley" or the "Company"),
acquired all of the outstanding common stock of Blackwell Publishing (Holdings)
Ltd. ("Blackwell") a company registered in the United Kingdom (the
"Acquisition"). The aggregate consideration paid was approximately $1.1 billion
(P572 million) of cash and the assumption of certain liabilities pursuant to a
Transaction Cooperation Agreement (the "TCA") between Blackwell shareholders and
John Wiley & Sons, Inc. As a condition of the TCA, Blackwell would exit as a
participating employer from the Blackwell Pension Fund (the "Fund"). The Fund
was a multi-employer plan, which provided for retirement benefits to the
employees of Blackwell and Blackwell Limited. Blackwell Limited is an
independent company operating bookshops, which was not part of the Acquisition.
Under an Approved Withdrawal Agreement ("AWA"), prearranged with the Trustees of
the Fund and The Pension Regulator, the accrued benefits of the Blackwell
members of the Blackwell's Pension Fund were transferred to a new pension plan
together with the pension assets and liabilities from the Blackwell's Pension
Fund. The terms of prearranged agreement required a payment of P21.6 million
($42.3 million) into the Fund within 14 days after the effective date of the
acquisition. The Company funded the requirement on February 14, 2007 through a
15-year index linked gilt investment portfolio.
To finance the cash consideration paid and to repay pre-existing credit
agreements, Wiley borrowed approximately $1.2 billion under a new Credit
Agreement with third party financial institutions, which is comprised of a
six-year Term Loan (the "Term Loan") in the amount of $675 million and a $675
million five-year revolving credit facility (the "Revolver") which can be drawn
in multiple currencies. Simultaneous with the execution of the new Credit
Agreement, the Company terminated all of its previous agreements and paid
approximately $85 million outstanding under those agreements by utilizing funds
from the new Credit Agreement. On February 16, 2007, the Company entered into an
interest rate swap agreement, designated as a cash flow hedge as defined under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
The hedge will fix a portion of the variable interest due on the new Term Loan.
The notional amount of the rate swap is initially $660 million which will
decline through February 8, 2011, based on the expected amortization of the Term
Loan. The purchase price, net of cash acquired and liabilities assumed and
including transaction costs of $3.5 million was approximately $1.0 billion.
The following unaudited pro forma condensed combined balance sheet as of January
31, 2007 and the unaudited pro forma condensed combined statements of operations
for the year ended April 30, 2006 and the nine months ended January 31, 2007 are
based on the historical financial statements of Wiley and Blackwell after giving
effect to (1) the Acquisition, (2) the new Credit Agreement and (3) the interest
rate swap agreement described in the accompanying notes to the unaudited pro
forma condensed combined financial statements. The unaudited pro forma condensed
combined financial statements, and accompanying notes, are based upon the
respective historical consolidated financial statements of the Company and
Blackwell, and should be read in conjunction with the historical financial
statements and related notes of the Company contained in the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 2007, and Annual Report on
Form 10-K for the year ended April 30, 2006, as well as the historical financial
statements and related notes of Blackwell, which are included elsewhere herein.
The unaudited pro forma condensed combined financial statements are being filed
pursuant to the requirements of Item 2 and 9.01 of Form 8-K and Article 11 of
U.S. Securities and Exchange Commission (SEC) Regulation S-X and are presented
solely for informational purposes and are not necessarily indicative of the
combined results of operations or financial position that might have been
achieved for the periods or dates indicated, nor are they necessarily indicative
of the future results of the combined company. The unaudited pro forma condensed
combined financial statements do not reflect cost savings, operating synergies
or revenue enhancements expected to result from the Acquisition or the costs to
achieve these cost savings, operating synergies and revenue enhancements. The
unaudited pro forma adjustments and the allocation of the purchase price are
based on Wiley management's preliminary estimates of the fair value of the
assets acquired and liabilities assumed in the Acquisition. These estimates are
subject to change based on finalization of the purchase accounting. The
preliminary allocation of the purchase price is based on the actual net tangible
assets and liabilities of Blackwell that existed as of December 31, 2006, the
date of the accompanying Blackwell Balance sheet.
The unaudited pro forma condensed combined balance sheet is presented as if the
Acquisition, the new Credit Agreement and interest rate swap agreement had been
completed on January 31, 2007, the last day of Wiley's third fiscal quarter and
combines the historical unaudited consolidated balance sheet of Wiley at January
31, 2007 and the historical unaudited consolidated balance sheet of Blackwell at
December 31, 2006.
The unaudited pro forma condensed combined statements of operations (the
"Statement of Operations") for the year ended April 30, 2006 and for the nine
months ended January 31, 2007 are presented as if the Acquisition, the new
Credit Agreement and the interest rate swap agreement had been completed as of
May 1, 2005. The unaudited pro forma condensed combined statement of operations
for the year ended April 30, 2006 combines the historical results of Wiley for
the year ended April 30, 2006 and the unaudited historical results of Blackwell
for the twelve-month period ended March 31, 2006. The unaudited historical
results of Blackwell for the twelve-month period ended March 31, 2006 have been
derived by taking the audited results for the year ended December 31, 2005,
adding the unaudited results for the three-months ended March 31, 2006 and
subtracting the unaudited results for the three months ended March 31, 2005 as
follows ($/P in thousands):
Revenues Net Income
Year ended December 31, 2005 P209,961 P27,979
Plus: Three months ended March 31, 2006 P54,253 P6,142
Less: Three months ended March 31, 2005 P(44,304) P(4,320)
Year ended March 31, 2006 P219,910 P29,801
Foreign exchange translation rate 1.7882 1.7882
Year ended March 31, 2006 $393,243 $53,290
The unaudited pro forma condensed combined statement of operations for the nine
months ended January 31, 2007 combines the historical unaudited results of Wiley
for the nine months ended January 31, 2007 and the historical unaudited results
of Blackwell for the nine months ended December 31, 2006. The unaudited
historical results of Blackwell for the nine-month period ended December 31,
2006 have been derived by taking the audited results for the year ended December
31, 2006 and subtracting the unaudited results for the three months ended March
31, 2006 as follows ($/P in thousands):
Revenues Net Income
Year ended December 31, 2006 P224,158 P29,932
Less: Three months ended March 31, 2006 P(54,253) P(6,142)
Nine months ended December 31, 2006 P169,905 P23,790
Foreign exchange translation rate 1.8670 1.8670
Nine months ended December 31, 2006 $317,213 $44,416
Blackwell's historical consolidated financial statements are presented in U.K.
pounds sterling and are prepared in accordance with U.K. GAAP, which differs in
certain respects from U.S. GAAP as described in Note 29 to the audited
consolidated financial statements of Blackwell contained elsewhere herein.
Wiley's consolidated financial statements are presented in U.S. dollars and are
prepared in accordance with U.S. GAAP. U.K. pound sterling amounts for Blackwell
as of December 31, 2006 and for the year ended March 31, 2006 and the nine
months ended December 31, 2006 have been translated into U.S. dollars using
exchange rates of P1 = $1.9562, P1 = $1.7882 and P1 = $1.8670, respectively.
Unless stated otherwise, all dollar amounts are presented in U. S. dollars. As
described in Notes 3 and 4 to these unaudited pro forma condensed combined
financial statements, Blackwell's historical consolidated financial statements
have been adjusted to U.S. GAAP and certain additional conforming presentation
adjustments have also been made to the financial statements of Blackwell to
conform with Wiley's presentation under U.S. GAAP.
Unaudited Pro Forma Condensed Combined Balance Sheet
at January 31, 2007
U.S. GAAP (U.S. dollar, in thousands)
Wiley at Blackwell at
January 31, December 31, Pro Forma Pro Forma
2007 2006 Adjustments (a) Combined
------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and Cash Equivalents $25,024 $182,142 $(10,874)(2)(5)(6)(7)(8) $196,292
Marketable Securities - 42,334 - 42,334
Accounts Receivable 186,506 56,297 - 242,803
Inventories 95,033 16,123 - 111,156
Deferred Income Tax Benefits 8,427 6,416 - 14,843
Other Current Assets 12,571 6,108 - 18,679
------------------------------------------------------------------------------
Total Current Assets 327,561 309,420 (10,874) 626,107
Product Development Assets 66,835 11,435 - 78,270
Property, Equipment and Technology 108,420 13,883 1,761(8) 124,064
Intangible Assets 308,211 46,262 795,491(3)(8) 1,149,964
Goodwill 206,600 12,275 491,113(3)(8) 709,988
Deferred Income Tax Benefit 11,440 2,650 - 14,090
Other Assets 29,713 6,191 7,477(1)(2)(7)(8) 43,381
------------------------------------------------------------------------------
Total Assets $1,058,780 $402,116 $1,284,968 $2,745,864
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and Royalties Payable $107,893 $55,898 $- $163,791
Deferred Revenue 156,075 194,670 (33,451)(8) 317,294
Accrued Income Taxes 23,811 23,521 - 47,332
Accrued Pension Liability 6,091 11,013 - 17,104
Current Portion of Long -Term Debt - - 22,500(5) 22,500
Other Accrued Liabilities 66,144 3,220 42,254(8) 111,618
------------------------------------------------------------------------------
Total Current Liabilities 360,014 288,322 31,303 679,639
Long-Term Debt 82,073 - 1,105,427(5)(6) 1,187,500
Accrued Pension Liability 62,216 - - 62,216
Other Long-Term Liabilities 33,635 2,620 2,347(8) 38,602
Deferred Income Taxes 17,554 - 257,518(8) 275,072
Total Shareholders' Equity 503,288 111,174 (111,627)(1)(4) 502,835
------------------------------------------------------------------------------
Total Liabilities & Shareholders' Equity $1,058,780 $402,116 $1,284,968 $2,745,864
==============================================================================
See accompanying notes to unaudited pro forma condensed combined financial
statements.
(a) Note references pertain to Footnote 3 "Pro Forma Adjustments".
Unaudited Pro Forma Condensed Combined Statement of Operations
U.S. GAAP (U.S. dollar, in thousands, except per share amounts)
Blackwell
Wiley Twelve Months
Year Ended Ended
April 30, March 31, Pro Forma Pro Forma
2006 2006 Adjustments (a) Combined
-------------------------------------------------------------------------
Revenue $1,044,185 $387,773 $- $1,431,958
Cost and Expenses
Cost of Sales 342,314 174,462 - 516,776
Operating and Administrative Expenses 535,694 135,818 1,395(5) 672,907
Amortization of Intangibles 13,498 4,248 4,160(2)(3) 21,906
-------------------------------------------------------------------------
Total Costs and Expenses 891,506 314,528 5,555 1,211,589
-------------------------------------------------------------------------
Operating Income 152,679 73,245 (5,555) 220,369
Interest Income and Other, net 1,125 4,897 - 6,022
Interest Expense (9,960) (16) (72,358)(1)(4) (82,334)
-------------------------------------------------------------------------
Net Interest Expense and Other (8,835) 4,881 (72,358) (76,312)
-------------------------------------------------------------------------
Income Before Taxes 143,844 78,126 (77,913) 144,057
Provision For Income Taxes 33,516 22,693 (28,929)(6) 27,280
-------------------------------------------------------------------------
Net Income $110,328 $55,433 $(48,984) $116,777
=========================================================================
Income per share:
Diluted $1.85 $1.95
Basic $1.90 $2.01
Average shares used in per share calculation:
Diluted 59,792 59,792
Basic 58,071 58,071
See accompanying notes to unaudited pro forma condensed combined financial
statements.
(a) Note references pertain to Footnote 3 "Pro Forma Adjustments".
Unaudited Pro Forma Condensed Combined Statement of Operations
U.S. GAAP (U.S. dollar, in thousands, except per share amounts)
Wiley Blackwell
Nine Months Nine Months
Ended Ended
January 31, December 31, Pro Forma Pro Forma
2007 2006 Adjustments (a) Combined
--------------------------------------------------------------------------
Revenue $844,742 $323,951 $- $1,168,693
Cost and Expenses
Cost of Sales 275,293 128,218 - 403,511
Operating and Administrative Expenses 430,641 131,397 1,092(5) 563,130
Amortization of Intangibles 11,151 7,201 (617)(2)(3) 17,735
--------------------------------------------------------------------------
Total Costs and Expenses 717,085 266,816 475 984,376
--------------------------------------------------------------------------
Operating Income 127,657 57,135 (475) 184,317
Interest Income and Other, net 995 8,222 - 9,217
Interest Expense (8,342) (17) (54,258)(1)(4) (62,617)
--------------------------------------------------------------------------
Net Interest Expense and Other (7,347) 8,205 (54,258) (53,400)
--------------------------------------------------------------------------
Income Before Taxes 120,310 65,340 (54,733) 130,917
Provision For Income Taxes 35,062 22,474 (20,549)(6) 36,987
--------------------------------------------------------------------------
Net Income $85,248 $42,866 $(34,184) $93,930
==========================================================================
Income per share:
Diluted $1.47 $1.62
Basic $1.50 $1.65
Average shares used in per share calculation:
Diluted 58,051 58,051
Basic 56,812 56,812
See accompanying notes to unaudited pro forma condensed combined financial
statements.
(a) Note references pertain to Footnote 3 "Pro Forma Adjustments".
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Purchase Price
The following table summarizes the components of the estimated total
consideration determined for accounting purposes for these pro forma condensed
combined financial statements and reflects the allocation of the purchase
consideration based on a valuation of the assets acquired and liabilities
assumed as of the closing date (in thousands):
Book value of Blackwell net tangible assets acquired, $52,637
Property, equipment and technology 1,761
Identifiable intangible assets:
Acquired publication rights 628,753
Trademark/trade name 143,200
Customer relationships 69,800
Goodwill 503,388
Deferred revenue 33,451
Third party Pension Fund liability (42,254)
Current Liabilities assumed (2,347)
Deferred Income Tax liabilities (257,518)
-----------
Total cash consideration paid, including direct acquisition costs (1) $1,130,871
-----------
Third party Pension Fund liability assumed 42,254
-----------
Total purchase price $1,173,125
==========
(1) Direct Acquisition costs are approximately $3.5 million consisting of
regulatory filing fees, investment banking fees, legal and accounting fees
and other external costs directly related to the Acquisition.
Management reviewed the recorded book values of Blackwell's net assets acquired
as of December 31, 2006, the date of the accompanying Blackwell Balance sheet,
and believes that other than property, equipment and technology, goodwill, other
intangibles and deferred revenue, the carrying amounts of these net assets
acquired approximate their current fair values.
The purchase consideration was allocated based on the estimated fair value of
the tangible and identifiable intangible assets acquired and liabilities assumed
in the Acquisition. An allocation of the purchase price has been made to major
categories of assets and liabilities in the accompanying unaudited pro forma
condensed combined financial statements based on management's best estimates.
The excess of the purchase price over the estimated fair value of tangible and
identifiable intangible assets acquired and liabilities assumed has been
allocated to goodwill. The preliminary allocation of the purchase price is based
upon estimates of the assets and liabilities acquired in accordance with SFAS
No. 141 "Business Combinations." The preliminary allocations may be revised when
the Company completes its valuations and its integration plans. The acquisition
of Blackwell is based on management's consideration of past and expected future
performance as well as the potential strategic fit with the long-term goals of
the Company. The expected long-term growth, market position and expected
synergies to be generated by Blackwell and Wiley are the primary factors that
gave rise to an acquisition price which resulted in the recognition of goodwill.
Property, equipment and technology - Compared to the net book value of property,
equipment and technology as of December 31, 2006, the Company recorded a
write-up adjustment of approximately $1.8 million. The adjustment relates to
capitalized software which will be depreciated over an estimated average life of
the assets of one to three years.
Identifiable intangible assets - Acquired publication rights represent the
rights to publish current and new editions of journal and book titles. Acquired
journal publishing rights are segregated into owned, non-owned and joint owned
titles. The right to publish a joint or non-owned journal is determined based
upon individual negotiated contractual arrangement, typically with membership
organizations referred to as "Societies" which specialize in the particular
field or discipline.
Owned journal publishing rights of approximately $486.9 million are
expected to have an indefinite estimated useful life due to Blackwell's
legal right to continue publishing the journals on a perpetual basis and
the historical sales patterns of the journals. Due to the long-term
historical nature of these relationships with societies, joint and
non-owned journal publishing rights are expected to have an estimated
useful life of 40 years. Trademarks and trade names are expected to have an
indefinite life due to the fact that the Blackwell name will be used by the
Company on an ongoing basis, the name is important to the Company's
business and it is long established and well recognized. Customer
relationships are expected to have a useful life of approximately 20 years.
Book publishing rights are expected to have a useful life of 10 to 15
years.
The fair value of intangible assets was based on a valuation conducted by a
third party specialist on behalf of Wiley's management using income
approach methodologies and was based on management's latest financial
forecast. The rates used to discount net cash flows to their present values
ranged from 9.5% to 15%. These discount rates were determined after
consideration of Blackwell's estimated weighted average cost of capital and
the estimated internal rate of return specific to the Acquisition.
Estimated useful lives for the intangible assets were based on historical
experience with product and customer relationship life cycles, and Wiley's
intended future use of the intangible assets. Intangible assets are being
amortized using the straight-line method, considering the pattern in which
the economic benefits of the intangible assets are consumed.
Goodwill - Goodwill represents the excess of the estimated purchase price
over the estimated fair value of tangible and identifiable intangible
assets acquired and liabilities assumed. Goodwill is not amortized but
rather is tested for impairment at least annually. In the event that the
Company determines that the value of goodwill has become impaired, the
Company will incur a charge for the amount of impairment during the fiscal
quarter in which such determination is made.
Deferred revenue - Deferred revenue represents subscription revenue
collected in advance, which is deferred and recognized as earned when the
related issue is shipped or made available online over the term of the
subscription. The fair value is based on management's estimated cost to
fulfill future issues that have been paid in advance plus an industry-based
gross profit margin.
2. Debt and Interest Swap Agreement
In connection with the Acquisition, Wiley entered into a new Credit
Agreement with Bank of America and Royal Bank of Scotland as Co-Lead
Arrangers in the aggregate amount of $1.35 billion. The financing is
comprised of a six-year Term Loan (Term Loan) in the amount of $675 million
and a $675 million five-year revolving credit facility (Revolver) which can
be drawn in multiple currencies. The agreement provides financing to
complete the acquisition, refinance the existing revolving debt of the
Company, as well as meet future seasonal operating cash requirements. The
Company has the option of borrowing at the following floating interest
rates: (i) at the rate as announced from time to time by Bank of America as
its prime rate or (ii) at a rate based on the London Bank Interbank Offered
Rate (LIBOR) plus an applicable margin ranging from .37% to 1.05% for the
Revolver and .45% to 1.25% for the Term Loan depending on the Company's
consolidated leverage ratio, as defined. In addition, the Company will pay
a facility fee ranging from .08% to .20% on the Revolver depending on the
Company's consolidated leverage ratio, as defined.
The Company has the option to request an increase of up to $250 million in
the size of the revolving credit facility in minimum amounts of $50
million. The credit agreement contains certain restrictive covenants
similar to those in the Company's prior credit agreements related to an
interest coverage ratio, funded debt levels and restricted payments,
including a limit on dividends paid and share repurchases. The Term Loan
matures on February 2, 2013 and the Revolver will terminate on February 2,
2012.
Simultaneous with the execution of the new Credit Agreement, the Company
terminated all of its previous credit agreements and paid in full amounts
outstanding under those agreements by utilizing funds from the new Credit
facility. In connection with the early termination of the previous credit
agreements, the Company will write off approximately $0.5 million of
unamortized debt origination fees in the fourth quarter of fiscal year
2007. Immediately following the acquisition, the Company had approximately
$1.2 billion of debt outstanding with approximately $0.1 billion of unused
borrowing capacity.
On February 16, 2007, the Company entered into an interest rate swap
agreement, designated as a cash flow hedge as defined under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The hedge
will fix a portion of the variable interest due on the new Term Loan. Under
the terms of the interest rate swap, the Company will pay a fixed rate of
5.076% and will receive a variable rate of interest based on three month
LIBOR (as defined) from the counter party which will be reset every three
months for a four-year period ending February 8, 2011. The notional amount
of the rate swap is initially $660 million which will decline through
February 8, 2011, based on the expected amortization of the Term Loan. It
is management's intention that the notional amount of the interest rate
swap be less than the Term Loan outstanding during the life of the
derivative.
3. Pro Forma Adjustments
Explanations of the adjustments to the unaudited pro forma condensed
combined balance sheet as of January 31, 2007 are as follows (in
thousands):
(1) To eliminate Wiley's existing debt issuance costs under its previous
credit facility.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Other assets - debt issuance costs $(453)
Retained earnings $(453)
(2) To record debt issuance costs under the $1.35 billion Debt Financing.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Other assets - debt issuance costs $8,428
Cash $(8,428)
(3) To eliminate Blackwell's existing goodwill and other intangibles, net.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Goodwill $(12,275)
Intangible assets $(46,262)
(4) To eliminate the shareholders' equity of Blackwell.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Common stock $(1,056)
Additional paid-in-capital $(1,135)
Retained earnings $(168,387)
Accumulated other comprehensive gain $59,404
(5) To record the proceeds borrowed under the $1.35 billion new Credit
Agreement.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Cash $1,210,000
Current Portion of Long-Term Debt $22,500
Long-Term Debt $1,187,500
(6) To record the repayment of Wiley's previous credit facilities with the
proceeds from the $1.35 billion new Credit Agreement.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Cash $(82,073)
Long-Term Debt $(82,073)
(7) To eliminate Wiley's capitalized acquisition costs as of January 31,
2007 related to the Acquisition. The full estimate of these costs is
reflected in the purchase price allocated below.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Other assets - capitalized acquisition costs $(498)
Cash $498
(8) To record the purchase consideration and the purchase price allocations
based on their fair values. The impact of the amortization of the fair
value adjustment relating to deferred subscription revenue has not been
recorded in the pro forma condensed combined statements of operations due
to its non-recurring nature. This adjustment will have an adverse impact on
the post-acquisition combined operations when the subscriptions are
published.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Cash $(1,130,871)
Property, equipment and technology $1,761
Goodwill $503,388
Acquired publication rights $628,753
Brands/trademarks $143,200
Customer relationships $69,800
Third party pension fund liability $42,254
Deferred revenue $(33,451)
Other long-term liabilities $2,347
Deferred income tax liabilities $257,518
Explanations of the adjustments included in the unaudited pro forma
condensed combined statement of operations for the fiscal year ended April
30, 2006 are as follows (in thousands):
(1) To record the amortization of debt issuance costs of $8.4 million over
the 6-year and 5-year terms of the Term Loan and Revolver, respectively.
The amortization is calculated on a straight-line basis for the Revolver
and under the effective interest method for the Term Loan.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Interest expense $1,737
(2) To eliminate the amortization expense of Blackwell's intangible assets.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Amortization of intangibles $(4,248)
(3) To record amortization expense associated with the various identified
amortizable intangible assets. These intangible assets are being amortized
using the straight-line method over their estimated useful lives, ranging
from 10 to 40 years.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Amortization of intangibles $8,408
(4) To record interest expense and facility fees associated with the $1.21
billion debt proceeds borrowed to finance the transaction. The interest
rate used for the Revolver is 6.20%, which is based on the 1-month LIBOR
rate of 5.32% as of February 8, 2007, plus a .875% margin. The interest
rate used for the Term Loan is 6.41%, which is based on the 3-month LIBOR
rate of 5.36% as of February 8, 2007, plus a 1.05% margin. Facility fees
were recorded on the Revolver at 0.175% of the $675 million facility.
Included within the interest expense is a reduction of $1.9 million due to
interest receivable under the interest rate swap agreement based on the
difference between the 5.08% fixed rate paid by Wiley and the 5.36%
variable rate received by Wiley on the $660 million notional amount of the
agreement on February 8, 2007.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Interest expense $70,621
(5) To record additional depreciation expense resulting from the fair value
write-up of property, equipment and technology. Such write-up is being
depreciated over the related assets' estimated useful lives, ranging from
one to three years. For pro forma presentation purposes, the entire amount
has been charges to operating and administrative expenses.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Operating and administrative expenses $1,395
(6) To record an income tax benefit on the pro forma adjustments for the
year ended April 30, 2006. Effective tax rates of 37.6% and 31.0% were
applied to the pro forma adjustments related to Wiley and Blackwell,
respectively. The Company is exploring tax planning opportunities which may
be utilized to reduce the effective tax rate of the Company after the
Acquisition. No such tax benefits have been assumed in these pro forma
financial statements.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Provision for income taxes $(28,929)
Explanations of the adjustments included in the unaudited pro forma
condensed combined statement of operations for the nine months ended
January 31, 2007 are as follows (in thousands):
(1) To record the amortization of debt issuance cost of $8.4 million over
the 6-year and 5-year terms of the Term Loan and Revolver, respectively.
The amortization is calculated on a straight-line basis for the Revolver
and under the effective interest method for the Tern Loan.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Interest expense $1,293
(2) To eliminate the amortization expense of Blackwell's intangible assets.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Amortization of intangibles $(7,201)
(3) To record amortization expense associated with the various identified
amortizable intangible assets. These intangible assets are being amortized
using the straight-line method over their estimated useful lives, ranging
from 10 to 40 years.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Amortization of intangibles $6,584
(4) To record interest expense and facility fees associated with the $1.21
billion debt proceeds borrowed to finance the transaction. The interest
rate used for the Revolver is 6.20% for the Revolver, which is based on the
1-month LIBOR rate of 5.32% as of February 8, 2007, plus .875% margin. The
interest rate used for the Term Loan is 6.41%, which is based on the
3-month LIBOR rate of 5.36% as of February 8, 2007, plus 1.06% margin.
Facility fees were recorded on the Revolver at 0.175% of the $675 million
facility. Included within the interest expense is a reduction of $1.4
million due to interest receivable under the interest rate swap agreement
based on the difference between the 5.08% fixed rate paid by Wiley and the
5.36% variable rate received by Wiley on the $660 million notional amount
of the agreement on February 8, 2007.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Interest expense $52,965
(5) To record additional depreciation expense resulting from the fair value
write-up of property, equipment and technology. Such write-up is being
depreciated over the related assets' estimated useful lives, ranging from
one to three years. For pro forma presentation purposes, the entire amount
has been charges to operating and administrative expenses.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Operating and administrative expenses $1,092
(6) To record an income tax benefit on the pro forma adjustments for the
nine months ended January 31, 2007. Effective tax rates of 37.6% and 31.0%
were applied to the pro forma adjustments related to Wiley and Blackwell,
respectively. The Company is exploring tax planning opportunities which may
be utilized to reduce the effective tax rate of the Company after the
Acquisition. No such tax benefits have been assumed in these pro forma
financial statements.
Line Item Increase (decrease)
--------------------------------------------------------------------------------------------------------
Provision for income taxes $(20,549)
4. Balance Sheet information relating to Blackwell
Blackwell Publishing (Holdings) Ltd.
Condensed Consolidated Balance Sheet*
December 31, 2006
(U.S. dollar, in thousands)
----------------------------------------------------------------------------------
U.K. U.S. GAAP Presentation Adjusted
GAAP Adjustments Adjustments
----------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and Cash Equivalents $182,142 $- $- $182,142
Marketable Securities 42,334 - - 42,334
Accounts Receivable 56,297 - (1,819)(7) 56,297
Inventories 17,942 - - 16,123
Deferred Income Tax Benefits 6,416 - - 6,416
Other Current Assets 22,201 (286)(1) (15,807)(7)(8) 6,108
----------------------------------------------------------------------------------
Total Current Assets 327,332 (286) (17,626) 309,420
Product Development Assets - - 11,435(7) 11,435
Property, Equipment and Technology 13,883 - - 13,883
Intangibles Assets 46,262 - - 46,262
Goodwill 3,621 8,654(2) - 12,275
Deferred Income Tax Benefit 6,389 (3,739)(3)(5) - 2,650
Other Assets - - 6,191(8) 6,191
----------------------------------------------------------------------------------
Total Assets $397,487 $4,629 $- $402,116
==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and Royalties Payable $55,898 $- $- $ 55,898
Deferred Revenue 194,670 - - 194,670
Accrued Income Taxes 23,887 (366)(4) - 23,521
Accrued Pension Liability - - 11,013(9) 11,013
Other Accrued Liabilities 3,220 - - 3,220
----------------------------------------------------------------------------------
Total Current Liabilities 277,675 (366) 11,013 288,322
Accrued Pension Liability 21,293 (10,280)(5) (11,013)(9) -
Other Long-Term Liabilities 1,440 1,180(6) - 2,620
Deferred Income Taxes - - - -
Total Shareholders' Equity 97,079 14,095(1)(2)(3)(4)(5) - 111,174
----------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $397,487 $4,629 $- $402,116
==================================================================================
Notes
-----
(1) Under U.K. GAAP, unpaid capital relating to certain restricted
voting shares is recorded as an asset. Under U.S. GAAP, the unpaid
capital relating to these shares is recorded as a reduction of equity.
(2) Under U.K. GAAP, goodwill arising on acquisitions made prior to
January 1998 has been eliminated against shareholder's equity.
Goodwill on acquisitions made after January 1, 1998 is capitalized and
amortized over its useful life up to a maximum of 20 years.
Under U.S. GAAP, goodwill is not amortized for accounting periods
beginning after December 15, 2001. Goodwill is tested for impairment
on an annual basis at the reporting unit level. Prior to this date,
goodwill was amortized over its useful life to a maximum of 40 years.
This adjustment is required to re-establish the goodwill written-off
to equity and the related amortization.
(3) Under U.K. GAAP, an entity is required to reflect in its profit or
loss and financial position the effects of share-based payment
transactions, including expenses associated with transactions in which
share options are granted to employees, for the first year ended after
December 15, 2006. The transitional provisions for UK GAAP requires
options expense to be recognized for all options granted after
November 7, 2002 and not yet vested at January 1, 2006. It also
requires the entity to restate comparative information and, where
applicable, adjust the opening balance of retained earnings for the
earliest period presented.
For U.S. GAAP, as Wiley adopted FAS 123(R) effective May 1, 2006 using
the modified prospective method, the Blackwell balances have been
prepared on the same basis. Prior to May 1, 2006, Wiley's share-based
payment transactions have been accounted for in accordance with APB 25
and FAS 123 for which no compensation expense was recorded. The
cumulative compensation expense for UK GAAP of $1.8 million up to the
effective date of FAS 123(R) and the related deferred tax asset ($.5
million) have therefore been reversed.
(4) Where appropriate, income tax at a statutory UK rate of 31% has
been applied for the accounting differences identified between U.K.
and U.S. GAAP.
(5) Under U.K. GAAP, any increase in the present value of the
liabilities of the Company's defined benefit scheme expected to arise
from employee service in the period is charged against operating
profit and included as part of staff costs. The interest costs and the
expected return on assets are shown as a net amount of other finance
costs or credits adjacent to interest. Actuarial gains and losses are
recognized immediately in the statement of total recognized gains and
losses.
Under U.S. GAAP, actuarial gains and losses that exceed 10% of the
greater of the obligation and assets are amortized over the remaining
service period of employees on a straight-line basis. Where the value
of plan assets is below the value of liabilities on an accumulated
benefit obligation basis, a minimum pension liability is recognized
through intangible assets to the extent of unrecognized transitional
obligation and prior service costs.
(6) Under U.K. GAAP, any lease incentive is recognized on a
straight-line basis over the period to the first review date to match
the effect of the increased rentals payable in later periods.
Under U.S. GAAP, lease incentives are recognized on a straight-line
basis over the term of the lease. For certain Blackwell leases, there
is a rent review date whereby lease payments can be adjusted for
increases in the market rates. For U.S. GAAP, the lease incentives are
recognized over the lease term, whereas for U.K. GAAP the lease
incentives are recognized over the period to the first review date.
(7) To reclassify royalty advances and journal backfile digitization
costs to conform to Wiley's presentation.
(8) To reclassify certain non-current assets to conform to Wiley's
presentation.
(9) To reclassify Blackwell's accrued pension liability to current
liabilities due to the Company's intent to fully fund the liability
within one year.
5. Statements of operations information relating to Blackwell
Blackwell Publishing (Holdings) Ltd.
Condensed Consolidated Statement of Operations
Twelve Months Ended March 31, 2006
(U.S. dollar, in thousands)
--------------------------------------------------------------------------------------
U.S.
U.K. GAAP Presentation
GAAP Adjustments Adjustments Adjusted
---------------------------------------------------------------------------------------
Revenue $393,243 $(5,470)(1) $- $387,773
Cost and Expenses
Cost of Sales 184,619 (2,990)(1) (7,167)(8) 174,462
Operating and Administrative Expenses 133,263 (4,612)(1)(2)(3)(4) 7,167(8) 135,818
Amortization of Intangibles 6,045 ( 1,797)(1)(5) - 4,248
--------------------------------------------------------------------------------------
Total Costs and Expenses 323,927 (9,399) - 314,528
--------------------------------------------------------------------------------------
Operating Income 69,316 3,929 - 73,245
Interest Income and Other, net 5,729 (832)(1)(6) - 4,897
Interest Expense (18) 2(1) - (16)
--------------------------------------------------------------------------------------
Net Interest Expense and Other 5,711 (830) - 4,881
--------------------------------------------------------------------------------------
Income Before Taxes 75,027 3,099 - 78,126
Provision For Income Taxes 21,737 956(1)(7) - 22,693
--------------------------------------------------------------------------------------
Net Income $53,290 $2,143 $- $55,433
======================================================================================
Notes
-----
(1) Under U.K. GAAP, the profit and loss account and cash flows of a
foreign enterprise are translated at the closing rate or at an average
rate for the period. Blackwell has used the closing rate.
Under U.S. GAAP, the average rate for the year is used to translate
the profit and loss accounts and cash flow statements of foreign
subsidiaries.
(2) Under U.K. GAAP, any lease incentive is recognized on a
straight-line basis over the period to the first review date.
Under U.S. GAAP, lease incentives are recognized on a straight-line
basis over the term of the lease. For certain Blackwell leases, there
is a rent review date whereby lease payments can be adjusted for
increases in the market rates. This adjustment increased operating and
administrative expense by $107,000 for the twelve months ended March
31, 2006.
(3) Under U.K. GAAP, any increase in the present value of the
liabilities of the Blackwell's defined benefit scheme expected to
arise from employee service in the period is charged against operating
profit and included as part of staff costs. The interest costs and the
expected return on assets are shown as a net amount of other finance
costs or credits adjacent to interest. Actuarial gains and losses are
recognized immediately in the statement of total recognized gains and
losses.
Under U.S. GAAP, actuarial gains and losses that exceed 10% of the
greater of the obligation and assets are amortized over the remaining
service period of employees on a straight-line basis. Where the value
of plan assets is below the value of liabilities valued on an
accumulated benefit obligation basis, a minimum pension liability is
recognized through intangible assets to the extent of unrecognized
transitional obligation and prior service costs. This adjustment
decreased operating and administrative expense by $1.7 million for the
twelve months ended March 31, 2006.
(4) Under U.K. GAAP, an entity is required to reflect in its profit or
loss and financial position the effects of share-based payment
transactions, including expenses associated with transactions in which
share options are granted to employees, for the first year ended after
December 15, 2006. The transitional provisions for UK GAAP requires
options expense to be recognized for all options granted after
November 7, 2002 and not yet vested at January 1, 2006. It also
requires the entity to restate comparative information and, where
applicable, adjust the opening balance of retained earnings for the
earliest period presented.
For U.S. GAAP, for the twelve months ended March 31, 2006, Wiley
prepared its financial statements in accordance with APB 25 and the
disclosure only provisions of SFAS 123 for which no compensation
expense is recorded. A conforming adjustment to reverse compensation
expense recorded for UK GAAP decreased operating and administrative
expense by $1.1 million.
(5) Under U.K. GAAP, the impairment of an intangible asset is measured
by comparing the value of the income generating unit under review to
the expected future discounted cash flows of the unit. Under U.S.
GAAP, an impaired intangible asset is first identified through a
comparison of the asset value to the sum of undiscounted future cash
flows of the asset. If the sum of the undiscounted future cash flows
is less than the asset value an impairment loss is recorded. The
impairment loss is measured as the difference between the carrying
amount of the intangible asset and the sum of the discounted future
cash flows. During the twelve months ended March 31, 2006, an
impairment charge of $1.6 million was reversed to conform to US GAAP.
Additionally, under U.S. GAAP, goodwill is not amortized for
accounting periods beginning after December 15, 2001 and therefore
amortization of $188,000 for the twelve months ended March 31, 2006
has been reversed.
(6) Under U.K. GAAP, Blackwell's gains and losses on foreign currency
forward contracts are only recorded in the profit and loss account
when realized. Under U.S. GAAP, changes in the fair value of non
hedged foreign currency forward contracts are recorded in the profit
and loss account for each reporting period. A conforming adjustment
was made to decrease interest income and other by $817,000.
(7) Where appropriate, income tax at a statutory UK rate of 31% has
been applied to the accounting differences identified between U.K. and
U.S. GAAP.
(8) To reclassify distribution related expenses to conform to Wiley's
presentation.
Blackwell Publishing (Holdings) Ltd.
Condensed Consolidated Statement of Operations
Nine Months Ended December 31, 2006
(U.S. dollar, in thousands)
--------------------------------------------------------------------------------------
U.S.
U.K. GAAP Presentation
GAAP Adjustments Adjustments Adjusted
---------------------------------------------------------------------------------------
Revenue $317,213 $6,738(1) $- $323,951
Cost and Expenses
Cost of Sales 130,115 3,478(1) (5,375)(9) 128,218
Operating and Administrative Expenses 121,745 4,277(1)(2)(3)(4)(5) 5,375(9) 131,397
Amortization of Intangibles 5,696 1,505(1)(6) - 7,201
--------------------------------------------------------------------------------------
Total Costs and Expenses 257,556 9,260 - 266,816
--------------------------------------------------------------------------------------
Operating Income 59,657 (2,522) - 57,135
Interest Income and Other, net 7,918 304(1)(7) - 8,222
Interest Expense (17) - - (17)
--------------------------------------------------------------------------------------
Net Interest Expense and Other 7,901 304 - 8,205
--------------------------------------------------------------------------------------
Income Before Taxes 67,558 (2,218) - 65,340
Provision For Income Taxes 23,142 668(1)(8) - 22,474
--------------------------------------------------------------------------------------
Net Income $44,416 $(1,550) $- $42,866
======================================================================================
Notes
- -----
(1) Under U.K. GAAP, the profit and loss account and cash flows of a foreign
enterprise are translated at the closing rate or at an average rate for the
period. Blackwell has used the closing rate. Under U.S. GAAP, the average rate
for the year is used to translate the profit and loss accounts and cash flow
statements of foreign subsidiaries.
(2) Under U.K. GAAP, any lease incentive is recognized on a straight-line basis
over the period to the first review date.
Under U.S. GAAP, lease incentives are recognized on a straight-line basis over
the term of the lease. For certain Blackwell leases, there is a rent review date
whereby lease payments can be adjusted for increases in the market rates. This
adjustment increased operating and administrative costs by $271,000 for the nine
months ended December 31, 2006.
(3) Under U.K. GAAP, provisions for vacated properties accounted for as
operating leases are decreased by future sublease income only at the time the
sublease arrangements have been secured.
Under U.S. GAAP, a liability for costs that will continue to be incurred under a
contract for its remaining term without economic benefit to the entity is
recognized and measured at its fair value when the entity ceases using the right
conveyed by the contract. The fair value of the liability is determined based on
the remaining lease rentals, reduced by estimated sublease rentals that could be
reasonably obtained for the property, even if the entity does not intend to
enter into a sublease. To conform to US GAAP an adjustment to increase operating
and administrative expenses by $1.1 million was recorded reflecting additional
expected sublease income. During 2006, a sublease tenant was signed and
therefore the estimated future cash flows at 31 December 2006 were the same for
U.K. GAAP and U.S. GAAP.
(4) Under U.K. GAAP, any increase in the present value of the liabilities of the
Company's defined benefit scheme expected to arise from employee service in the
period is charged against operating profit and included as part of staff costs.
The interest costs and the expected return on assets are shown as a net amount
of other finance costs or credits adjacent to interest. Actuarial gains and
losses are recognized immediately in the statement of total recognized gains and
losses.
Under U.S. GAAP, actuarial gains and losses that exceed 10% of the greater of
the obligation and assets are amortized over the remaining service period of
employees on a straight-line basis. Where the value of plan assets is below the
value of liabilities valued on an accumulated benefit obligation basis, a
minimum pension liability is recognized through intangible assets to the extent
of unrecognized transitional obligation and prior service costs. This conforming
adjustment increased operating and administrative expense by $575,000.
(5) Under U.K. GAAP, an entity is required to reflect in its profit or loss and
financial position the effects of share-based payment transactions, including
expenses associated with transactions in which share options are granted to
employees, for the first year ended after December 15, 2006. The transitional
provisions for UK GAAP requires options expense to be recognized for all options
granted after November 7, 2002 and not yet vested at January 1, 2006. It also
requires the entity to restate comparative information and, where applicable,
adjust the opening balance of retained earnings for the earliest period
presented.
For U.S. GAAP, Wiley adopted FAS 123R effective May 1, 2006 using the modified
prospective method. Prior to May 1, 2006, share-based payment transactions have
been accounted for in accordance with APB 25 and FAS 123 for which no
compensation expense was recorded. A conforming adjustment to reverse
compensation expense recorded for UK GAAP decreased operating and administrative
expense by $170,000.
(6) Under U.K. GAAP, the impairment of an intangible asset is measured by
comparing the value of the income generating unit under review to the expected
future discounted cash flows of the unit. Under U.S. GAAP, the carrying amount
of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition
of the asset. An impairment loss is measured as the amount by which the carrying
amount of a long-lived asset exceeds its fair value calculated on the basis of
discounted cash flows. During the nine months ended 31 December 2006, an
impairment charge of $1.7 million was required for US GAAP.
Additionally, under U.S. GAAP, goodwill is not amortized for accounting periods
beginning after December 15, 2001 and therefore amortization of $187,000 for the
nine months ended 31 December 2006 has been reversed.
(7) Under U.K. GAAP, Blackwell's gains and losses on foreign currency forward
contracts are only recorded in the profit and loss account when realized. Under
U.S. GAAP, changes in the fair value of non hedged foreign currency forward
contracts are recorded in the profit and loss account for each reporting period.
A conforming adjustment was made to increase interest income and other by
$177,000.
(8) Where appropriate, taxation has been applied at a UK statutory rate of 31%
for the accounting differences identified between U.K. and U.S. GAAP.
(9) To reclassify distribution related expenses to conform to Wiley's
presentation.