FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: April 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to
Commission file number 1-11507
JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5593032
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State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
111 River Street, Hoboken, NJ 07030
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Address of principal executive offices Zip Code
(201) 748-6000
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Registrant's telephone number
including area code
Securities registered pursuant to Section 12(b) Name of each exchange
of the Act: Title of each class on which registered
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Class A Common Stock, par value $1.00 per share New York Stock Exchange
Class B Common Stock, par value $1.00 per share New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act:
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None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes |X| No | |
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes | | No |X |
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |X| Accelerated filer | | Non-accelerated filer | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes | | No |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price as of the last business
day of the registrant's most recently completed second fiscal quarter, October
31, 2006, was approximately $1,525,648,638. The registrant has no non-voting
common stock.
The number of shares outstanding of the registrant's Class A and Class B Common
Stock as of May 31, 2007 was 47,705,595 and 9,895,087 respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for use in connection
with its annual meeting of stockholders scheduled to be held on September 20,
2007, are incorporated by reference into Part III of this form 10-K.
JOHN WILEY AND SONS, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 2007
INDEX
PAGE
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PART I
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ITEM 1. Business 4
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ITEM 1A. Risk Factors 4-7
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ITEM 1B. Unresolved Staff Comments 7
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ITEM 2. Properties 8
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ITEM 3. Legal Proceedings 8
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ITEM 4. Submission of Matters to a Vote of Security Holders 8
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PART II
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ITEM 5. Market for the Company's Common Equity and Related Stockholder Matters and
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Issuer Purchases of Equity Securities 9
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ITEM 6. Selected Financial Data 9
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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 9
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ITEM 8. Financial Statements and Supplemental Data 9
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ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 79
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ITEM 9A. Controls and Procedures 79
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ITEM 9B. Other Information 79
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PART III
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ITEM 10. Directors and Executive Officers of the Registrant 80-81
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ITEM 11. Executive Compensation 81
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 81
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ITEM 13. Certain Relationships and Related Transactions 81
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ITEM 14. Principal Accounting Fees and Services 81
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PART IV
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ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 82-84
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Signatures 85-92
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PART I
Item 1. Business
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The Company, founded in 1807, was incorporated in the state of New
York on January 15, 1904. (As used herein the term "Company" means
John Wiley & Sons, Inc., and its subsidiaries and affiliated
companies, unless the context indicates otherwise.)
The Company is a global publisher of print and electronic products,
providing content and solutions to customers worldwide. Core
businesses produce professional and consumer books and subscription
products; scientific, technical, and medical journals, encyclopedias,
books, and online products; and textbooks and educational materials,
including integrated online teaching and learning resources, for
undergraduate and graduate students, teachers and lifelong learners.
The Company takes full advantage of its content from all three core
businesses in developing and cross-marketing products to its diverse
customer base of professionals, consumers, researchers, students, and
educators. The use of technology enables the Company to make its
content more accessible to its customers around the world. The Company
maintains publishing, marketing, and distribution centers in the
United States, Canada, Europe, Asia, and Australia.
Further description of the Company's business is incorporated herein
by reference in the Management's Discussion and Analysis section of
this 10-K.
Employees
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As of April 30, 2007, the Company employed approximately 4,800 persons
on a full-time basis worldwide.
Financial Information About Industry Segments
---------------------------------------------
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements and the Management's Discussion and Analysis
section of this 10-K, both listed in the attached index, are
incorporated herein by reference.
Financial Information About Foreign and
Domestic Operations and Export Sales
---------------------------------------
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements and the Management's Discussion and Analysis
section of this 10-K, both listed in the attached index, are
incorporated herein by reference.
Item 1A. Risk Factors
------------
This section describes the major business risks to the Company and
should be carefully considered.
Cautionary Statement Under the Private Securities Litigation Reform
Act of 1995:
This 10-K and our Annual Report to Shareholders for the year ending
April 30, 2007 report contains certain forward-looking statements
concerning the Company's operations, performance, and financial
condition. In addition, the Company provides forward-looking
statements in other materials released to the public as well as oral
forward-looking information.
Statements which contain the words anticipate, expect, believes,
estimate, project, forecast, plan, outlook, intend and similar
expressions constitute forward-looking statements that involve risk
and uncertainties. Reliance should not be placed on forward-looking
statements, as actual results may differ materially from those in any
forward-looking statements.
Any such forward-looking statements are based upon a number of
assumptions and estimates that are inherently subject to uncertainties
and contingencies, many of which are beyond the control of the
Company, and are subject to change based on many important factors.
Such factors include, but are not limited to (i) the level of
investment in new technologies and products; (ii) subscriber renewal
rates for the Company's journals; (iii) the financial stability and
liquidity of journal subscription agents; (iv) the consolidation of
book wholesalers and retail accounts; (v) the market position and
financial stability of key online retailers; (vi) the seasonal nature
of the Company's educational business and the impact of the used-book
market; (vii) worldwide economic and political conditions; and (viii)
the Company's ability to protect its copyrights and other intellectual
property worldwide (ix) other factors detailed from time to time in
the Company's filings with the Securities and Exchange Commission. The
Company undertakes no obligation to update or revise any such
forward-looking statements to reflect subsequent events or
circumstances.
Operating Costs and Expenses
The Company has a significant investment, and cost, in its employee
base around the world. The Company offers competitive salaries and
benefits in order to attract and retain the highly skilled workforce
needed to sustain and develop new products and services required for
growth. Employment and benefit costs are affected by competitive
market conditions for qualified individuals, and factors such as
healthcare, pension and retirement benefits costs. The Company is a
large paper purchaser, and paper prices may fluctuate significantly
from time-to-time. The Company attempts to moderate the exposure to
fluctuations in price by entering into multi-year supply contracts and
having alternative suppliers available. In general, however, any
significant increase in the costs of goods and services provided to
the Company may adversely affect the Company's costs of operation.
Protection of Intellectual Property Rights
Substantially all of the Company's publications are protected by
copyright, held either in the Company's name, in the name of the
author of the work, or in the name of the sponsoring professional
society. Such copyrights protect the Company's exclusive right to
publish the work in the United States and in many countries abroad for
specified periods, in most cases the author's life plus 70 years, but
in any event a minimum of 28 years for works published prior to 1978
and 50 years for works published thereafter. The ability of the
Company to continue to achieve its expected results depends, in part,
upon the Company's ability to protect its intellectual property
rights. The Company's results may be adversely affected by lack of
legal and/or technological protections for its intellectual property
in some jurisdictions and markets.
Maintaining the Company's Reputation
Professionals worldwide rely upon many of the Company's publications
to perform their jobs. It is imperative that the Company consistently
demonstrates its ability to maintain the integrity of the information
included in its publications. Adverse publicity, whether or not valid,
may reduce demand for the Company's publications.
Trade Concentration and Credit Risk
Although the book publishing industry is concentrated in national,
regional, and online bookstore chains, the Company's business is not
dependent upon a single customer. No one book customer accounts for
more than 7% of total consolidated revenue. The top 10 book customers,
however, account for approximately 22% of total consolidated revenue
and approximately 42% of total gross trade accounts receivable as of
April 30, 2007.
In the journal publishing business, subscriptions are often sourced
through journal subscription agents who, acting as agents for library
customers, facilitate ordering and consolidate the subscription
orders/billings with various publishers. Subscription agents account
for approximately 19% of total consolidated revenue and no one agent
accounts for more than 8% of total consolidated revenue. Subscription
agents generally collect cash in advance from subscribers and remit
payments to journal publishers, including the Company, prior to the
commencement of the subscriptions. While at fiscal year-end the
Company had minimal credit risk exposure to these agents, future
calendar-year subscription receipts from these agents may depend
significantly on their financial condition and liquidity. Insurance
for payment on these accounts is not commercially feasible and/or
available.
Changes in Regulation and Accounting Standards
The Company maintains publishing, marketing and distribution centers
in Asia, Australia, Canada, Europe and the United States. The conduct
of our business, including the sourcing of content, distribution,
sales, marketing and advertising is subject to various laws and
regulations administered by governments around the world. Changes in
laws, regulations or government policies, including taxation
requirements and accounting standards, may adversely affect the
Company's future financial results.
Introduction of New Technologies or Products
Media and publishing companies exist in rapidly changing technological
and competitive environments. Therefore, the Company must continue to
invest in technological and other innovations and adapt in order to
continue to add value to its products and services and remain
competitive. There are uncertainties whenever developing new products
and services, and it is often possible that such new products and
services may not be launched or if launched, may not be profitable or
as profitable as existing products and services.
Competition for Market Share and Author Relationships
The Company operates in highly competitive markets. Success and
continued growth depends greatly on developing new products and the
means to deliver them in an environment of rapid technological change.
Attracting new authors and retaining our existing author relationships
are also critical to our success. We believe the Company is well
positioned to meet these business challenges with the strength of our
brands, our reputation and innovative abilities.
Effects of Inflation and Cost Increases
The Company, from time to time, experiences cost increases reflecting,
in part, general inflationary factors. To mitigate the effect of cost
increases, the Company may take various steps to reduce development,
production and manufacturing costs. In addition, the selling prices
for our products may be selectively increased as marketplace
conditions permit.
Ability to Successfully Integrate Key Acquisitions
The Company's growth strategy includes title, imprint and business
acquisitions which complement the Company's existing businesses; the
development of new products and services; designing and implementing
new methods of delivering products to our customers, and organic
growth of existing brands and titles. Acquisitions may have a
substantial impact on costs, revenues, cash flows, and financial
position such as, the Company's acquisition of Blackwell Publishing
(Holdings) Ltd. ("Blackwell") more fully described in Note 4 of the
annual report. Acquisitions involve risks and uncertainties, including
difficulties in integrating acquired operations and in realizing
expected opportunities, diversions of management resources and loss of
key employees, challenges with respect to operating new businesses,
debt incurred in financing such acquisitions, and other unanticipated
problems and liabilities.
Attracting and Retaining Key Employees
The Company's success is highly dependent upon the retention of key
employees globally. In addition, we are dependent upon our ability to
continue to attract new employees with key skills to support the
continued organic growth of the business.
Item 1B. Unresolved Staff Comments
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None
Item 2. Properties
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The Company occupies office, warehouse, and distribution facilities in
various parts of the world, as listed below (excluding those locations
with less than 10,000 square feet of floor area, none of which is
considered material property). All of the buildings and the equipment
owned or leased are believed to be in good condition and are generally
fully utilized.
Location Purpose Approx. Sq. Ft. Lease Expiration
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Leased
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Australia Office 19,000 2007
Office 33,000 2020
Warehouse 68,000 2016
Canada Office & Warehouse 87,000 2011
Office 18,000 2010
England Warehouse 131,000 2012
Office 63,000 2027
Office 17,000 2025
United States:
New Jersey Corporate Headquarters 383,000 2017
New Jersey Distribution Center & Office 188,000 2021
New Jersey Warehouses 380,000 2021
Indiana Office 116,000 2009
California Office 38,000 2012
Massachusetts Office 55,000 2017
Singapore Office & Warehouse 61,000 2008
Office 15,000 2008
Owned
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Germany Office 57,000
Office 29,000
England Office 50,000
Iowa Office & Warehouse 27,000
Item 3. Legal Proceedings
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The Company is involved in routine litigation in the ordinary course
of its business. In the opinion of management, the ultimate resolution
of all pending litigation will not have a material effect upon the
financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to the Company's security holders during the
last quarter of the fiscal year ended April 30, 2007.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
and Issuer Purchases of Equity Securities
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The Quarterly Share Prices, Dividends, and Related Stockholder Matters
listed in the index on page 10 are incorporated herein by reference.
Item 6. Selected Financial Data
-----------------------
The Selected Financial Data listed in the index on page 10 is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Management's Discussion and Analysis of Financial Condition and
Results of Operations listed in the index on page 10 is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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The information appearing under the caption "Market Risk" in
Management's Discussion and Analysis of Financial Condition and
Results of Operations listed in the index on page 10 is incorporated
herein by reference.
Item 8. Financial Statements and Supplemental Data
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The Financial Statements and Supplemental Data listed in the index on
page 10 is incorporated herein by reference.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
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The following financial statements and information appearing on the pages
indicated are filed as part of this report:
Page(s)
Management's Discussion and Analysis of Business, Financial Condition
and Results of Operations............................................................................... 11-39
Results by Quarter (Unaudited)................................................................................ 40
Quarterly Share Prices, Dividends, and Related Stockholder Matters and Issuer
Purchases of Equity Securities.......................................................................... 41
Selected Financial Data....................................................................................... 42
Management's Report on Internal Control over Financial Reporting ............................................. 43
Reports of Independent Registered Public Accounting Firm...................................................... 44-45
Consolidated Statements of Financial Position as of April 30, 2007 and 2006................................... 46
Consolidated Statements of Income for the years ended April 30, 2007, 2006, and 2005 ......................... 47
Consolidated Statements of Cash Flows for the
years ended April 30, 2007, 2006, and 2005.............................................................. 48
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended April 30, 2007, 2006, and 2005.............................................................. 49
Notes to Consolidated Financial Statements.................................................................... 50-77
Schedule II -- Valuation and Qualifying Accounts
for the years ended April 30, 2007, 2006, and 2005...................................................... 78
Other schedules are omitted because of the absence of conditions under which
they apply or because the information required is included in the Notes to
Consolidated Financial Statements.
Management's Discussion and Analysis of Business,
Financial Condition and Results of Operations
The Company is a global publisher of print and electronic products, providing
content and solutions to customers worldwide. Core businesses produce
professional and consumer books and subscription products; scientific,
technical, and medical journals, encyclopedias, books, and online products; and
textbooks and educational materials, including integrated online teaching and
learning resources, for undergraduate and graduate students, teachers and
lifelong learners. The Company takes full advantage of its content from all
three core businesses in developing and cross-marketing products to its diverse
customer base of professionals, consumers, researchers, students, and educators.
The use of technology enables the Company to make its content more accessible to
its customers around the world. The Company maintains publishing, marketing, and
distribution centers in the United States, Canada, Europe, Asia, and Australia.
Business growth comes from a combination of title, imprint and business
acquisitions which complement the Company's existing businesses; from the
development of new products and services; from designing and implementing new
methods of delivering products to our customers; and from organic growth of
existing brands and titles.
Core Businesses
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Professional/Trade:
The Company's Professional/Trade business acquires, develops and publishes books
and subscription products in all media, in the subject areas of business,
technology, architecture, culinary, psychology, education, travel, consumer
reference, and general interest. Products are developed for worldwide
distribution through multiple channels, including major chains and online
booksellers, independent bookstores, libraries, colleges and universities,
warehouse clubs, corporations, direct marketing, and Web sites. Global
Professional/Trade publishing accounted for approximately 39% of total Company
revenue in fiscal year 2007.
Key revenue growth strategies of the Professional/Trade business include adding
value to its content, developing its leading brands and franchises, and
executing strategic acquisitions. Revenue for the Company's worldwide
Professional/Trade business grew at a compound annual rate of 11% over the past
five years.
Publishing alliances and franchise products are central to the Company's
strategy. The Company's ability to bring together Wiley's product development,
sales, marketing, distribution and technological capabilities with a partner's
content and brand name recognition has been a driving factor in its success.
Professional/Trade alliance partners include General Mills, MTV, the Culinary
Institute of America, the American Medical Association, the American Institute
of Architects, Mergent, Inc., the National Restaurant Association Educational
Foundation and the Leader to Leader Institute, Morningstar, and Weight Watchers,
among many others.
The Company's Professional/Trade customers are professionals, consumers, and
students worldwide. Highly respected brands and extensive backlists are
especially well suited for online bookstores such as Amazon.com. With their
unlimited "virtual" shelf space, online retailers merchandise the Company's
products for longer periods of time than brick-and-mortar bookstores.
The Company promotes an active and growing Professional/Trade custom publishing
program. Custom publications are typically used by organizations for internal
promotional or incentive programs. Books that are specifically written for a
customer or an existing Professional/Trade publication can be customized, such
as having the cover art include custom imprint, messages or slogans. Of special
note are customized For Dummies publications, which leverage the power of this
well-known brand to meet the specific information needs of a wide range of
organizations around the world.
Key Acquisitions: The Company's business plan includes organic growth as well as
growth through acquisitions. Key Professional/Trade acquisitions in recent years
include: (i) In fiscal 2007, WhatsonWhen.com, a provider of travel-related
online content, technology, and services. (ii) In fiscal year 2006, the
publishing assets of Sybex, Inc., a leading publisher to the global information
technology professional community for nearly 30 years. Sybex published about 100
new titles a year and maintained a backlist of over 450 titles in digital
photography, operating systems, programming and gaming categories. (iii) In
fiscal year 2002, the Company acquired Hungry Minds Inc., a leading publisher
with an outstanding collection of respected brands, with such product lines as
the For Dummies series, the Frommer's and Unofficial Guide travel series, the
Bible and Visual technology series, the CliffsNotes study guides, Webster's New
World dictionaries, and Betty Crocker and Weight Watchers cookbooks.
Scientific, Technical, and Medical (STM):
The Company is a leading publisher for the scientific, technical, and medical
communities worldwide including, scientists, researchers, clinicians, engineers,
students and professors, and academic and corporate librarians. STM products
include journals, major reference works, reference books and protocols, in print
and online. STM publishing areas include the physical sciences and engineering,
medical, social science and humanities, life sciences and professional. STM
develops products for global distribution through multiple channels, including
library consortia, subscription agents, bookstores, online booksellers, and
direct sales to professional society members and other customers. Global STM
represented 44% of total Company revenue in fiscal year 2007. STM's revenue grew
at a compound annual rate of 9% over the past five years.
Established commercially in 1999, the Company's web-based service, Wiley
InterScience (www.interscience.wiley.com), offers online access to more than 400
journals and 3,000 reference books, Current Protocols laboratory manuals and
databases, as well as a suite of professional and management resources. Wiley
InterScience is based on a successful business model that features Enhanced
Access Licenses. One to three years in duration, Enhanced Access Licenses
provide academic and corporate customers with multi-site online access. The
Company also offers other flexible pricing options such as, Basic Access
licenses, which provide click-on access title-by-title to the Company's
electronic journal content. Access is also provided through Pay-Per-View, which
serves customers who wish to purchase individual articles or chapters. With over
25 million users in 90 countries around the globe, Wiley InterScience is one of
the world's leading providers of scientific, technical, and medical content.
Wiley InterScience takes advantage of technology to update content frequently,
and it adds new features and resources on an ongoing basis to increase the
productivity of scientists, professionals and students. Two examples are
EarlyView, through which customers can access individual articles well in
advance of print publication, and MobileEditions, which enables users to view
tables of content and abstracts on wireless handheld devices and Web-enabled
phones.
In 2005, the Company announced a program to digitize its entire historical
journal content, dating back to the 1800s. Wiley's digitization of legacy
content is designed to improve the research pathway and ensure content discovery
is as seamless and efficient as possible. The backfile collection, which is
available online through Wiley InterScience, will span two centuries of
scientific research and comprise over 14 million pages - one of the largest
archives of its kind issued by a single publisher. As of April 30, 2007
virtually all of Wiley's existing journal content was digitized and made
available to customers. The program will be expanded to include the journals
acquired in the Blackwell acquisition.
Publishing alliances play a major role in STM's success. The Company publishes
the journals of prestigious societies, including the American Cancer Society,
the British Journal of Surgery Society and the German Chemical Society. These
alliances bring mutual benefit, with the societies gaining Wiley's publishing,
marketing, sales and distribution expertise, while Wiley benefits from being
affiliated with prestigious societies and their members.
Key Acquisitions: Effective February 2, 2007 the Company finalized the
previously announced acquisition of all of the outstanding shares of Blackwell
Publishing (Holdings) Ltd. ("Blackwell"). Blackwell publishes journals and books
for the academic, research and professional markets focused on science,
technology, medicine and social sciences and humanities. Headquartered in
Oxford, England, Blackwell also maintains publishing locations in the United
States, Asia, Australia, Denmark and Germany. Approximately 50% of Blackwell's
annual revenue is derived from the United States. The combination of Blackwell's
publications with the Company's existing scientific, technical and medical
business results in an extensive portfolio of approximately 1,250 journals. The
purchase price of $1.1 billion ((pound)572 million) was financed with a
combination of debt and cash.
Blackwell currently employs approximately 1,000 individuals worldwide with just
over half located in the United Kingdom. Over 800 journal titles are published
with approximately 63% being affiliated with a professional society.
Blackwell's competition has consisted mostly of large STM publishers. Blackwell
has maintained a strong market share based on its content, distribution
abilities and successful society relationships.
The acquisition of Blackwell will enhance Wiley's global position as a provider
of must-have content and services, expand and diversify its journal portfolio,
increase both print and on-line advertising revenue, increase society
relationships, accelerate growth globally and enhance the delivery of on-line
content.
In fiscal year 2006, the Company acquired InfoPoems Inc., a leading provider of
evidence-based medicine (EBM). This acquisition along with the Cochrane
Collaboration database provides the foundation for the Company's growing suite
of EBM products designed to improve patient healthcare. EBM facilitates the
effective management of patients through clinical expertise informed by best
practice evidence that is derived from medical literature.
Higher Education:
The Company publishes educational materials for the higher education market in
all media, focusing on courses in the sciences, geography, mathematics,
engineering, accounting, business, economics, computer science, psychology,
education, and modern languages. In Australia, the Company is also a leading
publisher for the secondary school market.
Higher Education customers include undergraduate, graduate, and advanced
placement students, educators, and lifelong learners worldwide. Product is
delivered principally through college bookstores, online booksellers, and Web
sites. Globally, Higher Educational generated 17% of total Company revenue in
fiscal year 2007. Through organic growth and acquired products, both print and
electronic, the Company's worldwide Higher Education revenue grew at a compound
annual rate of 5% over the past five years.
Higher Education's mission is to help teachers teach and students learn. Our
strategy is to provide value-added quality materials and services through
textbooks, supplemental study aids, course and homework management tools and
more, in print and electronic formats. The Higher Education web site offers
online learning materials with links to more than 4,000 companion sub-sites to
support and supplement textbooks.
Higher Education delivers high-quality online learning materials that offer more
opportunities for customization and accommodate diverse learning styles. The
prime example is WileyPLUS, an integrated suite of teaching and learning
resources. By offering an electronic version of a text along with supplementary
materials, content provided by the instructor, and administrative tools,
WileyPLUS supports the full range of course-oriented activities, including
online-planning, presentations, study, homework, and testing.
The Company also provides the services of the Wiley Faculty Network, a
peer-to-peer network of faculty/professors supporting the use of online course
material tools and discipline-specific software in the classroom. The Company
believes this unique, reliable, and accessible service gives the Company a
competitive advantage.
Higher Education is also leveraging the web in its sales and marketing efforts.
The web enhances the Company's ability to have direct contact with students and
faculty at universities worldwide through the use of interactive electronic
brochures and e-mail campaigns.
Key Acquisition/Collaborations: Soon after the end of fiscal year 2006, Wiley
became Microsoft's sole publishing partner worldwide for all Microsoft Official
Academic Course (MOAC) materials. Microsoft and Wiley have begun publishing a
co-branded series of textbook and e-learning products on several topics to be
released under Wiley-Microsoft logos. Wiley has also assumed responsibility for
the sale of existing MOAC titles. All titles will be marketed globally and
available in several languages. With Microsoft's position as the world's leading
software company and Wiley's global presence in higher education, the alliance
is an ideal strategic fit.
In fiscal year 2003, the Company acquired the assets of Maris Technologies to
support the Company's efforts to produce web-enabled products. This acquisition
included the market-leading software Edugen, which provides the underlying
technology for WileyPLUS. Located in Moscow, the development facility is staffed
by approximately 52 programmers and designers who had been employed in the space
program of the former Soviet Union. In fiscal year 2002, the Company acquired
publishing assets consisting of 47 higher education titles from Thomson
Learning. The titles are in such areas as business, earth and biological
sciences, foreign languages, mathematics, nutrition, and psychology.
Publishing Operations
- ---------------------
Journal Products:
The Company will now publish over 3,200 journals and other subscription-based
STM and Professional/Trade products with the acquisition of Blackwell. Journals
and other subscription based products accounted for approximately 39% of the
Company's fiscal year 2007 revenue. The journal portfolio includes journals
owned by the Company, in which case they may or may not be sponsored by a
professional society, jointly owned with a professional society and those owned
by such societies and published by the Company pursuant to contracts. Societies
that sponsor or own such journals generally receive a royalty and/or other
consideration. The Company usually enters into agreements with outside
independent editors of journals that state the duties of the editors, and the
fees and expenses for their services. Contributors of journal articles transfer
publication rights to the Company or a professional society, as applicable.
The Company sells journal subscriptions through sales representatives; direct
mail or other advertising; promotional campaigns; and memberships in
professional societies for those journals that are sponsored by such societies.
Journal subscriptions are primarily licensed through contracts for on-line
content derived through Wiley InterScience and/or Blackwell-Synergy. The
contracts are negotiated directly with customers or their subscription agents.
Licenses range from one to three years in duration and typically cover calendar
years.
Printed journals are generally mailed to subscribers directly from independent
printers. Journal content is available online. Subscription revenue is generally
collected in advance, and is deferred and recognized as earned when the related
issue is shipped or made available online, or over the term of the subscription
as services are rendered.
Book Products:
Book products and book related publishing revenue, such as advertising revenue
and the sale of publishing rights, accounted for approximately 61% of the
Company's fiscal year 2007 revenue. Materials for book publications are obtained
from authors throughout most of the world through the efforts of an editorial
staff, outside editorial advisors, and advisory boards. Most materials originate
with their authors, or as a result of suggestion or solicitations by editors and
advisors. The Company enters into agreements with authors that state the terms
and conditions under which the materials will be published, the name in which
the copyright will be registered, the basis for any royalties, and other
matters. Most of the authors are compensated by royalties, which vary with the
nature of the product and its anticipated sales potential. The Company may make
advance payments against future royalties to authors of certain publications.
The Company continues to add new titles, revise existing titles, and discontinue
the sale of others in the normal course of its business, also creating
adaptations of original content for specific markets fulfilling customer demand.
The Company's general practice is to revise its textbooks every three to five
years, if warranted, and to revise other titles as appropriate.
Subscription-based products are updated more frequently on a regular schedule.
Approximately 35% of the Company's fiscal year 2007 U.S. book-publishing revenue
was from titles published or revised in the current fiscal year.
Professional and consumer books are sold to bookstores and online booksellers
serving the general public; wholesalers who supply such bookstores; warehouse
clubs; college bookstores for their non-textbook requirements; individual
practitioners; and research institutions, libraries (including public,
professional, academic, and other special libraries), industrial organizations,
and government agencies. The Company employs sales representatives who call upon
independent bookstores, national and regional chain bookstores and wholesalers.
Trade sales to bookstores and wholesalers are generally made on a returnable
basis with certain restrictions. The Company provides for estimated future
returns on sales made during the year principally based on historical
experience. Sales of professional and consumer books also result from direct
mail campaigns, telemarketing, online access, and advertising and reviews in
periodicals.
Adopted textbooks and related supplementary material, such as WileyPLUS, are
sold primarily to bookstores, including online bookstores, serving educational
institutions. The Company employs sales representatives who call on faculty
responsible for selecting books to be used in courses, and on the bookstores
that serve such institutions and their students. Textbook sales are generally
made on a fully returnable basis with certain restrictions. The textbook
business is seasonal, with the majority of textbook sales occurring during the
June through August and November through January periods. There is an active
used textbook market, which adversely affects the sales of new textbooks.
Like most other publishers, the Company generally contracts with independent
printers and binderies for their services. The Company purchases its paper from
independent suppliers and printers. The fiscal year 2007 weighted average U.S.
paper prices increased approximately 5% over fiscal year 2006. Management
believes that adequate printing and binding facilities, and sources of paper and
other required materials are available to it, and that it is not dependent upon
any single supplier. Printed book products are distributed from both
Company-operated warehouses and independent distributors.
The Company develops content in digital format that can be used for both online
and print products, which results in productivity and efficiency savings, as
well as enabling the Company to offer customized publishing and print-on-demand
products. Book content is increasingly being made available online through Wiley
InterScience, WileyPLUS and other platforms, and in eBook format through
licenses with alliance partners. The Company also sponsors online communities of
interest, both on its own and in partnership with others, to expand the market
for its products.
The Company believes that the demand for new electronic technology products will
continue to increase. Accordingly, to properly service its customers and to
remain competitive, the Company anticipates it will be necessary to increase its
expenditures related to such new technologies over the next several years.
The Internet not only enables the Company to deliver content online, but also
helps to sell more books. The growth of online booksellers benefits the Company
because they provide unlimited virtual "shelf space" for the Company's entire
backlist.
Marketing and distribution services are made available to other publishers under
agency arrangements. The Company also engages in co-publishing of titles with
international publishers and in publication of adaptations of works from other
publishers for particular markets. The Company also receives licensing revenue
from photocopies, reproductions, and electronic uses of its content as well as
advertising revenue from web sites such as Frommers.com.
Global Operations
- -----------------
The Company's publications are sold throughout most of the world through
operations located in Europe, Canada, Australia, Asia, and the United States.
All operations market their indigenous publications, as well as publications
produced by other parts of the Company. The Company also markets publications
through agents as well as sales representatives in countries not served by the
Company. John Wiley & Sons International Rights, Inc. sells reprint and
translations rights worldwide. The Company publishes or licenses others to
publish its products, which are distributed throughout the world in many
languages. Approximately 43% of the Company's fiscal year 2007 revenue was
derived from non-U.S. markets.
Competition and Economic Drivers Within the Publishing Industry
- ---------------------------------------------------------------
The sectors of the publishing industry in which the Company is engaged are
highly competitive. The principal competitive criteria for the publishing
industry are considered to be the following: product quality, customer service,
suitability of format and subject matter, author reputation, price, timely
availability of both new titles and revisions of existing books, online
availability of published information, and timely delivery of products to
customers.
The Company is in the top rank of publishers of scientific and technical
journals worldwide, as well as a leading commercial chemistry publisher at the
research level; one of the leading publishers of university and college
textbooks and related materials for the "hardside" disciplines, (i.e. sciences,
engineering, and mathematics), and a leading publisher in its targeted
professional/trade markets. The Company knows of no reliable industry statistics
that would enable it to determine its share of the various international markets
in which it operates.
Performance Measurements
- ------------------------
The Company measures its performance based upon revenue, operating income,
earnings per share and cash flow growth, excluding unusual or one-time events,
and considering current worldwide and regional economic conditions. Because of
the Company's unique blend of businesses, industry statistics do not always
provide meaningful comparisons. The Company does maintain market share
statistics for publishing programs in each of its businesses. STM uses various
reports to monitor competitor performance and industry financial metrics.
Specifically for the journal titles, the ISI Impact Factor, published by the
Institute for Scientific Information, is used as a key metric of a journal
titles influence in scientific publishing. For Professional/Trade, market share
statistics published by BOOKSCAN, a statistical clearinghouse for book industry
point of sale data in the United States, are used. The statistics include survey
data from all major retail outlets, mass merchandisers, small chain and
independent retail outlets. For Higher Education, the Company subscribes to
Management Practices Inc., which publishes customized comparative sales reports.
Results of Operations
Fiscal Year 2007 Summary Results
For the full year, revenue advanced 18% over prior year to $1.2 billion, or 17%
excluding the favorable impact of foreign exchange. Blackwell Publishing Ltd.
("Blackwell") contributed $105.8 million to the revenue growth since it was
acquired on February 2, 2007. The year-on-year growth reflected continued
momentum in the Company's global businesses. Excluding Blackwell, revenue grew
8% to $1.1 billion, or 7% excluding the favorable impact of foreign exchange.
Gross profit margin for fiscal year 2007 decreased to 65.9% from 67.2% in the
prior year. Lower inventory and author advance provisions due to higher sales
were more than offset by the adverse impact of a $13 million acquisition
accounting adjustment to revenue, and gross margins on Blackwell sales.
Excluding the acquisition accounting adjustment, Blackwell's gross margin was
approximately 53%. Excluding Blackwell, gross profit margin improved 40 basis
points to 67.6%
Operating and administrative expenses increased 18% over the prior year, or 16%
excluding the adverse impact of foreign exchange. The increase primarily
reflects $38.7 million of incremental operating expenses related to Blackwell;
increased editorial/production costs, marketing and selling to support business
growth; stock option costs of $11.3 million associated with the adoption of SFAS
123R; and a $4.4 million bad debt provision related to the bankruptcy of
Advanced Marketing Services (AMS).
Amortization of intangibles increased $7.2 million principally due to
acquisitions. The Blackwell acquisition contributed approximately $5.5 million
of the increase.
Operating income improved 6% to $161.3 million in fiscal year 2007, including
operating income of $6.5 million related to Blackwell. The operating margin for
fiscal year 2007 was 13.1% or 13.7% excluding Blackwell, as compared to 14.6% in
the prior year period. Improved gross margin and lower depreciation were offset
by incremental expenses associated with the adoption of SFAS 123R and the AMS
bad debt provision. Net interest expense and other increased $12.9 million to
$21.8 million mainly due to finance costs associated with the Blackwell
acquisition.
The effective tax rate for fiscal year 2007 was 28.6% compared to 23.3% in the
prior year. Fiscal years 2007 and 2006 include tax benefits of $5.5 million and
$6.8 million, respectively, due to the resolution and settlements of certain
matters with state, federal and international tax authorities. Fiscal year 2006
also includes a $7.5 million tax benefit associated with the reversal of a tax
accrual recorded on the repatriation of dividends from European subsidiaries in
the fourth quarter of fiscal year 2005. On May 10, 2005, the U.S. Internal
Revenue Service issued Notice 2005-38. The notice provided for a tax benefit
that fully offset the tax accrued by the Company on foreign dividends in the
fourth quarter of fiscal year 2005. None of the tax benefits had a cash impact
on the Company. Fiscal years 2007 and 2006 effective tax rates excluding these
benefits and without Blackwell were 35.1% and 33.2%, respectively. The increase
was principally due to higher taxes on non-U.S. sourced earnings. Blackwell's
effective tax rate had, and is expected to have, a favorable impact on the
Company's consolidated effective tax rate.
Reported earnings per diluted share and net income for fiscal year 2007 were
$1.71 and $99.6 million, respectively. Excluding the tax benefits, earnings per
diluted share for fiscal years 2007 and 2006 were $1.62 and $1.61, respectively.
See Non-GAAP Financial Measures described below. The results for fiscal year
2007 include an incremental $7.1 million after-tax charge, or $0.12 per diluted
share, related to the adoption of SFAS 123R. The Blackwell acquisition was
dilutive to net income and earnings per diluted share by $1.2 million and $0.02,
respectively.
Non-GAAP Financial Measures: The Company's management evaluates operating
performance excluding unusual and/or nonrecurring events. The Company believes
excluding such events provides a more effective and comparable measure of
performance. Since adjusted net income and adjusted earnings per share are not
measures calculated in accordance with GAAP, they should not be considered as a
substitute for other GAAP measures, including net income and earnings per share
as indicators of operating performance. Adjusted net income and adjusted
earnings per diluted share, for fiscal years 2007 and 2006, excluding the tax
benefits discussed above are as follows:
Reconciliation of Non-GAAP Financial Disclosure
- -----------------------------------------------
For the Years Ended
April 30,
Net Income (in thousands) 2007 2006
- --------------------------------------------------------------------------------
As Reported $99,619 $110,328
Tax (Benefit) Provision on Dividends Repatriated - (7,476)
Resolution of Tax Matters (5,468) (6,776)
- --------------------------------------------------------------------------------
Adjusted $94,151 $96,076
================================================================================
- --------------------------------------------------------------------------------
For the Years Ended
April 30,
Earnings Per Diluted Share 2007 2006
- --------------------------------------------------------------------------------
As Reported $1.71 $1.85
Tax (Benefit) Provision on Dividends Repatriated - (0.12)
Resolution of Tax Matters (0.09) (0.11)
- --------------------------------------------------------------------------------
Adjusted $1.62 $1.61
================================================================================
Fiscal Year 2007 Segment Results
Blackwell is reported below as a separate segment. In the first quarter of
fiscal year 2007, the Company finalized a review of certain product prices used
to settle inter-segment sales. As a result of the study, certain intersegment
product prices were modified. While the modification had no effect on
consolidated financial results, it did impact individual segment operating
results. Below is a supplemental segment report adjusting prior year results to
reflect the current modified product prices:
Adjusted Segment Results For The Years Ended April 30,
(Amounts in millions) 2007 2006
----------- -----------------------------------------
Inter- % Change
As As Segment As
Reported Reported Impact Adjusted Adjusted Reported
----------- ---------- --------- ----------- ---------- ----------
Revenue:
Professional/Trade $ 399.5 $ 380.2 $ (7.9) $ 372.3 7% 5%
Scientific, Technical and Medical 222.0 206.0 (1.1) 204.9 8% 8%
Higher Education 162.5 156.2 (3.7) 152.5 7% 4%
European Segment 316.1 292.5 (4.1) 288.4 10% 8%
Blackwell 105.8 - - - - -
Asia, Australia & Canada 132.9 124.0 (0.1) 123.9 7% 7%
Inter-Segment Sales Eliminations (103.9) (114.7) 16.9 (97.8) (6)% 9%
---------------------------------------------------------------------------------------
Total Revenue $ 1,234.9 $1,044.2 $ - $ 1,044.2 18% 18%
=======================================================================================
Direct Contribution to Profit:
Professional/Trade $ 107.6 $ 107.0 $ (5.8) $ 101.2 6% 1%
Scientific, Technical and Medical 101.0 96.0 - 96.0 5% 5%
Higher Education 41.2 40.1 (3.4) 36.7 12% 3%
European Segment 104.8 93.4 5.9 99.3 6% 12%
Blackwell 29.7 - - - - -
Asia, Australia & Canada 27.2 26.7 3.3 30.0 (9)% 2%
---------------------------------------------------------------------------------------
Total Direct Contribution to Profit $ 411.5 $ 363.2 $ - $ 363.2 13% 13%
Shared Services and Admin. Costs (250.2) (210.5) - (210.5) (19)% (19)%
---------------------------------------------------------------------------------------
Operating Income $ 161.3 $ 152.7 $ - $ 152.7 6% 6%
=======================================================================================
Professional/Trade (P/T):
%
Dollars in thousands 2007 2006 change
- --------------------------------------------------------------------------------
Revenue $399,461 $380,191 5%
Direct Contribution $107,575 $106,971 1%
Contribution Margin 26.9% 28.1%
Wiley's U.S. P/T revenue for fiscal year 2007 advanced 5% to $399.5 million from
$380.2 million in the previous year, or 7% after adjusting for the effect of the
change in inter-segment product prices. The results were driven by the cooking,
travel, business, and technology programs, as well as strong global rights and
advertising revenue partially offset by lower SuDoku sales as planned. Revenue
from acquisitions in the current year contributed approximately $2.0 million of
growth over the prior year.
Adjusting for the effect of the change in inter-segment product prices direct
contribution improved 6%. Also on an adjusted basis, contribution margin for
fiscal year 2007 decreased 30 basis points to 26.9%. Favorable product mix and
lower inventory and royalty advance provisions were more than offset by a bad
debt provision related to the bankruptcy of Advanced Marketing Services of $4.4
million and stock option costs associated with the adoption of SFAS 123R of $1.4
million.
Frommer's reached a milestone during Wiley's bicentennial year, as the
well-known travel-guide brand celebrated its 50th anniversary with the
publication of new editions and titles in its Day by Day and Pauline Frommer
series. Several finance, business, and leadership titles stood out among the
year's publications, including True North by Bill George, a follow-up to
Authentic Leadership; The Only Three Questions That Count, by Ken Fisher,
long-time Forbes columnist and Chairman and CEO of Fisher Investments; the third
book in the best-selling Little Book series, Little Book of Common Sense
Investing by John Bogle; The Science of Success: How Market-Based Management
Built the World's Largest Private Company by Charles Koch, Chairman and CEO of
Koch Industry; and Chocolates on the Pillow Aren't Enough: Reinventing the
Customer Experience by the Chairman and CEO of Loewe's Hotels, Jonathan Tisch.
Previously published titles continued to build momentum, including Weight
Watchers New Complete Cookbook and The Bon Appetit Cookbook. Hedgehogging by
Barton Biggs; The Little Book That Beats The Market by Joel Greenblatt; Empire
of Debt: The Rise of an Epic Financial Crisis by William Bonner and Addison
Wiggin; The Invisible Employee: Realizing the Hidden Potential in Everyone by
Adrian Gostick and Chester Elton; and Stock Investing For Dummies, 2nd Edition
by Paul Mladjenovic were all featured on major bestseller lists in 2007 along
with perennial Wiley bestsellers, Five Dysfunctions of a Team by Patrick
Lencioni; Investing For Dummies, by Eric Tyson; J.K. Lasser's Income Tax 2006;
and SuDoku For Dummies by Andrew Heron and Andrew Stuart.
P/T's online business had an excellent year with strong advertising sales. Wiley
acquired Whatsonwhen.com, a provider of travel-related online content,
technology, and related services during the second quarter. The acquisition is
already enhancing Wiley's extensive travel-related content business, which
includes the integrated online and print Frommer's, For Dummies, and Unofficial
Guides brands. Nearly 1,400 articles adapted from For Dummies text were
delivered to Yahoo! Tech during the year. Yahoo! Tech provides consumers with
advice and information on technology. Wiley significantly increased the number
of Podcasts offered on its websites during the fiscal year.
In March, Wiley acquired the publishing assets of Anker Publishing, including
approximately 100 backlist titles and a quarterly newsletter (Department Chair)
which covers professional development for faculty and administrators in higher
education.
During the year, Wiley signed an agreement with Microsoft to publish business
books under a Microsoft Executive Circle series. P/T also signed a multi-year
publishing agreement with the Lincoln Center for the Performing Arts, Inc. for a
minimum of 15 books that will draw on Lincoln Center's community of artists,
extensive archives, and educational expertise. Another alliance was formed
during the fall with Essential Learning Partnership, a provider of web-based
continuing education for clinical professionals in psychology, counseling, and
social work, to enable clinicians to purchase training courses using Wiley
titles to meet license requirements.
Scientific, Technical and Medical (STM):
%
Dollars in thousands 2007 2006 change
- --------------------------------------------------------------------------------
Revenue $222,050 $206,008 8%
Direct Contribution $101,070 $96,009 5%
Contribution Margin 45.5% 46.6%
U.S. STM revenue for fiscal year 2007 increased 8% to $222.1 million from $206.0
million in the previous year. Revenue growth was driven by journal
subscriptions, non-subscription revenue, such as advertising and the sale of
journal reprints, and STM reference books. New businesses and publication rights
acquired during the year, such as InfoPOEMS, Dialysis & Transplantation, The
Hospitalist, the Journal of Orthopedic Research, Clinical Cardiology and Carpe
Diem contributed approximately $5.0 million of the top-line growth for the year.
Direct contribution to profit for fiscal year 2007 increased 5% to $101.1
million. Contribution margin decreased to 45.5% from 46.6% in the prior year.
The decline in margin was primarily due to the higher cost of imported products
and higher royalties due to product mix. STM results were also affected by costs
associated with the adoption of SFAS 123R of approximately $1.2 million.
Customers continue to take advantage of Wiley InterScience's content. The number
of visits grew by nearly 24% during fiscal year 2007 compared to the previous
year. Pay-Per-View and Article Select sales were strong around the world.
During the year, the Company embarked on an aggressive program to further
exploit its intellectual content by digitizing selected landmark STM books.
Consequently, the number of online books downloaded from Wiley InterScience grew
by 30% during the year. The program includes the digitization of more than 750
volumes from at least 21 book series. Series editors include such eminent and
pioneering scientists as Nobel Laureates Ilya Prigogine and Jean-Marie Lehn, and
National Medal of Science Winner Stuart Rice. The Book Series is available as
individual volumes, complete series, or multiple series, with discounts offered
based on the number of volumes purchased. Wiley currently publishes
approximately 2,800 online books, with approximately 40-50 new titles added
every month. With the addition of the 750 back volumes, total online book
content will comprise over one million pages.
During the year, Wiley signed publishing agreements with several scholarly
societies, including the Mt. Sinai School of Medicine, the International Society
of Magnetic Resonance in Medicine, the Society of Biochemistry and Molecular
Biology, and the American College of Rheumatology.The Company also expanded its
partnership with Skyscape, Inc., a leading provider of interactive, intelligent
health solutions for desktop and mobile devices, to make InfoPOEMs
evidence-based medicine summaries available to Skyscape's customer base of more
than 575,000 medical professionals.
Earlier in the year, Wiley signed an agreement with the New York Public Library
to provide public online access to over 300 peer-reviewed journals that until
now have been available principally through academic or corporate collections.
The objectives of this pilot project are to accumulate usage data on high-level
journal content in a public library setting. This is Wiley's first such license
for journal content with a major public library in North America.
Higher Education:
%
Dollars in thousands 2007 2006 change
- --------------------------------------------------------------------------------
Revenue $162,480 $156,235 4%
Direct Contribution $41,173 $40,065 3%
Contribution Margin 25.3% 25.6%
U.S. Higher Education revenue in fiscal year 2007 increased 4% to $162.5
million, or 7% after adjusting for the effect of the change in inter-segment
product prices. Strong growth in accounting, driven by new editions sold through
WileyPLUS, social sciences and sales of Microsoft Official Academic Course
(MOAC) titles were partially offset by softness in mathematics, science, and
engineering.
Direct contribution to profit for fiscal year 2007 improved 3%, or 12% adjusted
for the effect of the change in inter-segment product prices. The improvement
was due to revenue growth and lower costs driven by off-shoring composition,
improved vendor terms, lower inventory provisions and lower costs associated
with the delivery of electronic product, partially offset by incremental stock
option costs associated with the adoption of SFAS 123R of $1.1 million.
Contribution margin adjusted for the effect of the change in inter-segment
prices improved 120 basis points to 25.3%
WileyPLUS sales for fiscal year 2007 increased 90% over the prior year.
Digital-only, i.e., not accompanied by a textbook, accounted for 20% of
WileyPLUS sales. Marketing programs in the UK and Asia are helping to establish
a presence for WileyPLUS in those regions. WileyPLUS Assignment Editions were
officially launched in the Australian and New Zealand markets.
Soon after the end of the fiscal year, Higher Education enhanced and re-launched
its WileyPLUS online presence at www.wileyplus.com. Redesigned with intuitive
navigation and user-focused content, the site will offer introductory
information and demos, along with resources for current student and faculty
users. The Wiley Faculty Network, a peer-to-peer network to help instructors
better utilize technology, experienced a 50% increase in the number of attendees
to its Guest Lectures throughout the fiscal year.
Early in the year, Wiley became Microsoft's sole publishing partner worldwide
for all MOAC materials. Microsoft and Wiley are collaborating on a new
co-branded series of textbook and e-learning products on several topics. Wiley
also assumed responsibility for the sale of existing MOAC titles. Sales of MOAC
titles have surpassed the expectations of both Wiley and Microsoft.
The National Geographic Collegiate Atlas, which Wiley publishes as part of its
alliance with the National Geographic Society (NGS), was awarded the Best
Book/Atlas at the American Congress on Surveying and Mapping design competition.
Earlier in the year, Higher Education launched Wiley Visualizing, a series of
introductory textbooks developed in exclusive partnership with the NGS that
integrate rich visuals and media with text to enhance learning.
Marketplace response to the new textbook series has been very positive. Higher
Education also announced partnerships with the CFA Institute, a global
membership organization of investment practitioners and educators, to publish
finance titles under the CFA Institute Investment Series brand. Earlier in the
year, Wiley and the George Lucas Educational Foundation, a non-profit
organization dedicated to innovation and improvement in education, signed an
agreement to co-produce a series of six textbooks employing "project-based"
learning, which, has been demonstrated to increase self-direction and improve
research and problem-solving skills.
Europe:
% %
Dollars in thousands 2007 2006 change excluding FX
- -------------------------------------------------------------------------------------------------
Revenue $316,125 $292,462 8% 4%
Direct Contribution $104,796 $93,415 12% 11%
Contribution Margin 33.2% 31.9%
Wiley Europe's revenue for fiscal year 2007 increased 8% to $316.1 million, or
5% after adjusting for the effect of the change in inter-segment product prices
and favorable foreign exchange. The revenue growth was principally driven by
journal subscriptions and STM reference books partially offset by lower SuDoku
For Dummies sales, as planned.
Direct contribution for the full year increased 12% over the prior year, or 4%
after adjusting for the effect of the change in inter-segment product prices and
favorable foreign exchange. Higher royalties due to product mix and a $1.2
million charge for stock option costs associated with the adoption of SFAS 123R
were partially offset by improved costs associated with electronic revenue. Also
on an adjusted basis, the contribution margin decreased 30 basis points to 34.1%
from 34.4% in the prior year.
The year ended on a positive note with indigenous books showing strength. P/T
sales picked up momentum in continental Europe during the fourth quarter with
much of the growth coming from technology books. STM journal subscriptions
continued to increase in all disciplines, particularly chemistry, which includes
the Angewandte Chemie journals published on behalf of the German Chemical
Society.
Early in the year, Wiley Europe announced the formation of a multi-year
publishing partnership with the Dana Centre, an extension of the Science Museum
in London. Written by leading technology journalists and experts in the U.K.,
the books will examine technology-related news stories from around the world;
explore their implications on everyday life; and provide predictions for the
future. The Dana Centre is well known for its innovative and thought-provoking
events and debates on contemporary science, technology, and culture.
Wiley Europe also signed a contract with the Strategic Management Society to
publish a new journal, Strategic Entrepreneurship, extending its relationship
with the Society. Wiley Europe signed a co-publishing agreement during the
fourth quarter for a new book series with the Royal Microscopy Society, aiming
to deliver three titles per year. Earlier in the year, an agreement was reached
with the Royal Meteorological Society (RMetS), a leading professional and
learned society, to publish all five of its journals. This agreement expands an
existing relationship, establishing Wiley as the exclusive publisher of all the
RMetS journals. Wiley and the RMetS have worked together since 1980, when they
launched the International Journal of Climatology.
During the year, Wiley Europe renewed its contract with National Health Service
in the U.K. for the Cochrane National Site License. In July, Wiley-VCH
re-launched the pro-physik.de portal with a number of new customer-oriented
features, such as enhanced search capabilities.
Wiley Europe acquired the European Transactions on Telecommunications journal,
which it has been publishing under a collaborative agreement for years. Wiley
and the British Journal of Surgery Society renewed their contract.
Wiley Europe has been exploring new business opportunities with
telecommunications companies. As a result, it extended its publishing
partnership with Symbian to include the formation of a new Symbian Academy
program for accredited Higher Education institutions, drawing on content from
across all of Wiley's publishing programs.
Blackwell:
Dollars in thousands 2007
- ----------------------------------------------------
Revenue $105,761
Direct Contribution $29,699
Contribution Margin 28.1%
Blackwell's operating results have been included in the consolidated results of
the Company since the effective date of the acquisition February 2, 2007.
Blackwell revenue and direct contribution for fiscal year 2007 was $105.8
million and $29.7 million, respectively. Included in the results are
approximately $5.5 million of amortization charges for intangible assets related
to the acquisition. While not included in direct contribution, financing costs
charged to interest expense for the acquisition were approximately $16.7 million
in the quarter. The acquisition was dilutive to EPS by approximately $0.02 in
the quarter and the fiscal year.
Since completing the acquisition, we have made significant progress integrating
Blackwell with Wiley's global STM business. We have validated many of the key
assumptions that underlie our acquisition plan. During the fourth quarter of
fiscal year 2007, we announced the global organization structure for the merged
business, which will include Blackwell and Wiley colleagues on the leadership
team. Plans have been approved to merge global sales, marketing and content
management which will result in significant synergies. As planned, we are
capitalizing on Blackwell's successful off-shoring and outsourcing of various
content management, manufacturing and shared support services.
Our current priorities are to finalize plans for the implementation of a single
web platform; complete the integration of technology infrastructure resources;
and to complete the transition to a common financial reporting, distribution and
customer service infrastructure. By the end of fiscal year 2008, we expect to
have implemented the action plans and initiatives that will deliver the
synergies that underpin our acquisition plan.
Since the acquisition closed, Wiley and Blackwell have renewed society journal
contracts and announced the launch of new journals and new partnerships. New
publications include Clinical and Translational Science, which will focus on the
rapidly expanding field of translational studies, a complex medical discipline
emerging at the intersection of applied bench research and clinical medicine;
Regulation & Governance, a specialized international journal addressing the
world's most pressing audit and risk challenges; Asian Social Work and Policy
Review, the Korean Academy of Social Welfare's official publication; and
Archives of Drug Information, a new, freely available peer-reviewed journal
featuring the results of drug studies. This journal will help to address
requests for transparency voiced by societies, health care practitioners,
patients, media, and the government to disclose clinical trial information.
Asia, Australia and Canada:
% %
Dollars in thousands 2007 2006 change excluding FX
- -------------------------------------------------------------------------------------------------
Revenue $132,992 $123,950 7% 5%
Direct Contribution $27,217 $26,747 2% -4%
Contribution Margin 20.5% 21.6%
Wiley's fiscal year 2007 revenue in Asia, Australia, and Canada advanced 7% to
$133.0 million, or 5% excluding favorable foreign exchange. Growth was driven by
strong P/T sales in all regions and the sale of rights, partially offset by
disappointing school sales in Australia. Direct contribution for the full year
increased 2% to $27.2 million, but decreased 15% after adjusting for the effect
of the change in inter-segment product prices and favorable foreign exchange.
The decline was principally due to product mix and investments in the
development of indigenous publishing programs.
WileyPLUS gained ground with new adoptions across Asia, Australia, and Canada.
Microsoft Official Academic Course (MOAC) books are eliciting much interest,
especially in Malaysia and India.
Wiley Canada delivered mixed results throughout the year, showing strength in
its P/T business, but falling short in Higher Education. P/T's growth was driven
by demand for local real estate titles and front-list releases, as well as
strong demand for For Dummies titles. An indigenous title, Beyond the Crease by
hockey player Martin Brodeur, has been selling well globally. Sales of WileyPLUS
have exceeded expectations in Canada.
Shared Service and Administrative Costs
Shared services and administrative costs for fiscal year 2007 increased 19% to
$250.2 million, or 17% excluding the unfavorable impact of foreign exchange.
Blackwell contributed $23.2 million to the increase in fiscal year 2007
operating expenses. In addition, the increase reflects costs due to business
growth and performance, stock options costs of $6.1 million associated with the
adoption of SFAS 123R, and higher occupancy costs, mainly due to new facilities,
partially offset by lower depreciation expense.
Fiscal Year 2006 Summary Results
For the full year, revenue advanced 7% over prior year to $1.0 billion, or 8%
excluding foreign currency effects. The year-on-year growth was driven by all of
Wiley's businesses around the world. Gross profit margin for fiscal year 2006
was 67.2% compared with 66.6% in the prior year. Improvements in STM, Higher
Education and the European segment were partially offset by lower gross margins
in Professional/Trade and other segments.
Operating and administrative expenses increased 8% over the prior year. Foreign
exchange accounted for approximately $1.9 million of the increase. Editorial,
sales, marketing and distribution costs to support revenue growth, and
investments in technology were partially offset by lower costs associated with
certification of internal controls as required by Sarbanes-Oxley 404. Operating
and administrative expenses as a percent of revenue were 51% in both years.
Operating income advanced 8% to $152.7 million in fiscal year 2006 or 9%
excluding adverse foreign currency effects. Revenue growth and improved gross
margins were partially offset by higher amortization due to acquisitions.
Operating margin was 14.6% compared with 14.5% in fiscal year 2005. The
operating margin increase reflects improvement in gross margin due to product
mix, partially offset by higher amortization of intangibles. Net interest
expense and other increased $3.1 million to $8.8 million, mainly due to higher
interest rates.
The Company's effective tax rate was 23.3% in fiscal year 2006. Excluding the
tax charges and benefits described in the non-GAAP financial disclosure, the
effective tax rate for fiscal year 2006 increased to 33.2% as compared to 32.7%
in fiscal year 2005. The increase was mainly due to higher effective foreign tax
rates.
Earnings per diluted share and net income for fiscal year 2006 on a US GAAP
basis were $1.85 and $110.3 million, respectively. Excluding the tax
adjustments, which are further described below, earnings per diluted share and
net income for fiscal year 2006 on a Non-GAAP basis rose 10% to $1.61 and 5% to
$96.1 million, respectively. Growth in earnings per diluted share reflects
favorable operating performance and the Company's share repurchase program.
Non-GAAP Financial Measures: The Company's management evaluates performance
excluding unusual and/or nonrecurring events. The Company believes excluding
such events provides a more effective and comparable measure of performance.
Since adjusted net income and adjusted earnings per share are not a measure
calculated in accordance with GAAP, it should not be considered as a substitute
for other GAAP measures, including net income and earnings per share, as
reported, as an indicator of operating performance.
Adjusted net income and adjusted earnings per diluted share excluding the tax
charges and benefits are as follows:
Reconciliation of Non-GAAP Financial Disclosure
- -----------------------------------------------
For the Years Ended
April 30,
Net Income (in thousands) 2006 2005
- --------------------------------------------------------------------------------
As Reported $110,328 $83,841
Tax (Benefit) Provision on Dividends Repatriated (7,476) 7,476
Resolution of Tax Matters (6,776) -
- --------------------------------------------------------------------------------
Adjusted $96,076 $91,317
================================================================================
- --------------------------------------------------------------------------------
For the Years Ended
April 30,
Earnings Per Diluted Share 2006 2005
- --------------------------------------------------------------------------------
As Reported $1.85 $1.35
Tax (Benefit) Provision on Dividends Repatriated (0.12) 0.12
Resolution of Tax Matters (0.11) -
- --------------------------------------------------------------------------------
Adjusted $1.61 $1.47
================================================================================
Pursuant to guidance issued by the Internal Revenue Service in May 2005, the
Company recorded a tax benefit of approximately $7.5 million, or $0.12 per
diluted share, in the first quarter of fiscal year 2006, and reduced income
taxes due on the fiscal year 2005 repatriation of earnings from its European
subsidiaries. As previously discussed in the Company's Annual Report filed on
Form 10-K for fiscal year 2005, the tax benefit offsets a tax charge of $7.5
million recorded in the fourth quarter of fiscal year 2005, neither of which had
a cash impact to the Company.
A $6.8 million, or $0.11 per diluted share, tax benefit related to the favorable
resolution of certain tax matters with tax authorities was also reported for the
full year ending April 30, 2006. The Company's management excludes these tax
items for comparative purposes so as to not distort the underlying operating
performance of the Company.
Cash flow provided by operating activities in fiscal year 2006 of $242.6 million
was used to fund investing activities ($113.6 million), inclusive of $31.4
million for the acquisition of publishing assets; to acquire 2.8 million shares
of treasury stock ($108.9 million); repay debt ($32.5 million); and for cash
dividends to shareholders ($21.1 million).
Fiscal Year 2006 Segment Results
Professional/Trade (P/T):
%
Dollars in thousands 2006 2005 change
- --------------------------------------------------------------------------------
Revenue $380,191 $350,338 9%
Direct Contribution $106,971 $102,326 5%
Contribution Margin 28.1% 29.2%
Revenue growth of Wiley's U.S. P/T business accelerated throughout fiscal year
2006, culminating in a strong fourth quarter. Revenue for the full year advanced
9% to $380 million, while fourth quarter revenue reached a record $106 million,
13% over the same period in the prior year. Virtually all of P/T's publishing
categories and sales channels contributed to the strong results, with standout
performances by the technology, business, finance and architectural programs, as
well as global rights and website advertising. P/T's finance and leadership
programs, as well as the Sybex technology titles it acquired in May 2005, and
the popularity of the SuDoku for Dummies series helped to deliver the
record-setting results. The Sybex acquisition contributed approximately $9
million to revenue.
Direct contribution to profit was up 5% for the year. The improvement in
top-line results was partially offset by higher cost of sales mainly due to
product mix.
A number of successful titles contributed to the year's results, notably The
Little Book That Beats the Market by Joel Greenblatt; SuDoku For Dummies,
Volumes 1-3 by Andrew Herron and Edmund James; Weight Watcher's New Complete
Cookbook; Betty Crocker Cookbook: Everything You Need to Know to Cook Today; and
Hedgehogging by Barton Biggs. Several perennial favorites and new titles also
made significant contributions, including Five Dysfunctions of a Team by Patrick
Lencioni; his new title, Silos, Politics, and Turf Wars; Automatic Wealth by
Michael Masterson; and The Party of the Century: The Fabulous Story of Truman
Capote and His Black and White Ball by Deborah Davis. A new series, Frommer's
Day by Day, and the first Frommers.com Podcast, successfully extended this key
brand.
Media attention was particularly focused on a number of titles tied to current
affairs (Bird Flu by Marc Siegel and The Global Class War by Jeff Faux); popular
products (The Bear Necessities of Business: Building a Company with Heart by
Maxine Clark and Amy Joyner at the flagship Build-a-Bear store); or movies
(Party of the Century by Deborah Davis which capitalized on the success of the
movie, Capote), as well as well-known authors (The Poker Face of Wall Street,
Aaron Brown and Hedgehogging by Barton Biggs). Aggressive marketing kept Wiley
brands and titles in the public eye, including a major advertising campaign for
Little Book That Beats the Market in The Wall Street Journal and Bloomberg
radio; the annual For Dummies month promotions; and a pay-per-view webcast with
Amazon.com, featuring author Pat Lencioni.
More than 800 articles were adapted from the For Dummies text for licensing with
Yahoo Tech, a new website that provides consumers with advice and information on
technology. An agreement with Microsoft was signed to license content from seven
of Wiley's top cookbooks, including How to Cook Everything by Mark Bittman,
Cooking at Home with The Culinary Institute of America, and Mr. Boston: Official
Bartender's and Party Guide by Mr. Boston, Anthony Giglio, and Steven McDonald).
Scientific, Technical and Medical (STM):
%
Dollars in thousands 2006 2005 change
- --------------------------------------------------------------------------------
Revenue $206,008 $190,515 8%
Direct Contribution $96,009 $88,899 8%
Contribution Margin 46.6% 46.7%
Wiley's U.S. STM business delivered consistently excellent results throughout
fiscal year 2006, growing revenue over prior year by 8% to $206 million. Direct
contribution to profit also rose by 8% for the year.
Subscription and non-subscription revenue from journal backfiles, advertising,
and commercial reprints contributed significantly to growth. The reference book
program completed its second year of strong growth driven by strong title output
and global market strength. STM also benefited from recent acquisitions of
Dialysis and Transplantation, a medical journal and InfoPOEMs, a provider of
evidence-based medicine content.
Wiley InterScience, the Company's online service, reached a milestone midway
through the fiscal year: more than one million journal articles are now
available online. The value of this growing body of literature to the global
research community can be quantified in the concurrent increase in the number of
users, as well as the number of manuscripts submitted for publication. In fiscal
year 2006, U.S. STM received approximately 9% more journal manuscripts and
published 8% more journal pages than the previous year. More people gained
access to Wiley InterScience by taking advantage of alternate purchasing
programs, such as Pay-Per-View, which began offering individual article sales
from the growing backfile collection during this year. At the end of the fiscal
year, Wiley participated with Microsoft in the launch of Windows Live Academic
Search pilot, which improves the search capabilities of journal content from
Wiley and ten other major STM publishers.
Important publications during the year include the inaugural issue of a
pharmaceutical-company sponsored Chinese-language digest version of Hepatology;
the Physics and Astronomy Backfile, which includes the oldest journal published
by Wiley, Annalen der Physik, founded in 1799; the first two issues of the
Journal of Hospital Medicine; and a refurbished Annals of Neurology. Also
released during the fourth quarter were the new 18th edition of the Merck
Manual; the 8th edition of The Wiley Registry of Mass Spectral Data; and a wide
array of single and multi-volume reference works.
During the fourth quarter, the Company reached an agreement with the Institute
of Electrical and Electronics Engineers of Japan to publish a new
English-language journal, IEEJ Transactions; extended its long-term publishing
agreement for the Journal of Research in Science Teaching; and began publication
of the Journal of Orthopedic Research in partnership with the Orthopedic
Research Society.
Higher Education:
%
Dollars in thousands 2006 2005 change
- --------------------------------------------------------------------------------
Revenue $156,235 $150,905 4%
Direct Contribution $40,065 $38,221 5%
Contribution Margin 25.6% 25.3%
Wiley's U.S. Higher Education business increased 4% to $156 million in fiscal
year 2006. Continuing to build on the strength experienced in the third quarter,
fourth quarter revenue advanced 15% to $23 million compared to the previous
year's quarter.
Higher Education's direct contribution margin for the year improved 30 basis
points to 25.6% mainly due to lower composition costs and inventory provisions.
The mathematics, life sciences, engineering and computer science programs
performed extremely well during the year, with strong showings by
Tortora/Principles of Anatomy and Physiology; Black/Microbiology;
Voet/Fundamentals of Biochemistry; Hughes-Hallet/Calculus; Anton/Calculus;
Munson/Fluid Mechanics; and Horstman/Big Java.
WileyPLUS continued to gain traction during fiscal year 2006, as more students
and faculty around the world chose to use its customizable multi-format suite of
content, teaching and learning tools to help them do homework, study for tests,
assess coursework, and administer classes.
Soon after the end of the fiscal year, Wiley became Microsoft's sole publishing
partner worldwide for all Microsoft Official Academic Course (MOAC) materials.
Microsoft and Wiley will collaborate on a new co-branded series of textbook and
e-learning products for the higher education market, to be released under
Wiley-Microsoft logos. Wiley will also assume responsibility for the sale of
existing MOAC titles. The new series will offer topics covering Windows Vista,
Microsoft Office Systems 2007, and the Windows Server codenamed "Longhorn." All
titles will be marketed globally and available in several languages. With
Microsoft's position as the worlds leading software company and Wiley's global
presence in higher education, the alliance is an ideal strategic fit.
Earlier in the year, Higher Education extended its global alliance with the
National Geographic Society to create new products sold exclusively with Wiley
textbooks and WileyPLUS.
Europe:
% %
Dollars in thousands 2006 2005 change excluding FX
- ---------------------------------------------------------------------------------------------
Revenue $292,462 $268,857 9% 12%
Direct Contribution $93,415 $86,226 8% 11%
Contribution Margin 31.9% 32.1%
Fiscal Year 2006 was another strong year for Wiley's European-based companies,
with revenue for the year advancing 9% over the prior year to $292 million, or
12% excluding foreign currency effects. Virtually all of Wiley Europe's
businesses, product lines, and markets contributed to the performance. Strong
performance was exhibited in P/T and STM book publishing, as well as journals.
Global sales from the SuDoku For Dummies series contributed to the increase in
P/T revenue. Direct contribution margin was essentially in line with the prior
year's results.
Best-selling books included products as diverse as the second edition of
Encyclopedia of Inorganic Chemistry, edited by R. Bruce King, and the enormously
popular SuDoku For Dummies and Kakuro For Dummies. The power of the For Dummies
brand was evidenced by the publication of a six-figure print run of a custom
mini-book for the World Cup, Winning on Betfair For Dummies. The German For
Dummies program published 51 new titles and 49 reprints during fiscal year 2006.
The expansion of Wiley Europe's publishing portfolio opened up new markets and
customer groups. The technology channel saw strong growth throughout the fiscal
year 2006 with a series of agreements with major telecommunications
corporations. In February 2006, the Company entered a popular new market with
the acquisition of Fernhurst Books, a best-selling list of manuals and guides on
sailing, boating, and other nautical sports. The first seven titles of the
Securities and Investment Institute series published during fiscal year 2006.
Wiley Europe's new journals, small, an interdisciplinary journal on nanoscience
and nanotechnology embracing materials science, physics, chemistry and
biosciences and the related engineering areas ChemMedChem; and the Biotechnology
Journal, all performed well. Chemistry-An Asian Journal, an alliance between
Wiley-VCH, the German Chemical Society, and several major Asian chemical
societies, gained traction during the year as new societies signed on, including
The Singapore National Institute of Chemistry and the Chemical Society located
in Taipei.
The Cochrane Collaboration, an evidence-based medicine collection, available
through Wiley InterScience, finished fiscal year 2006 strongly reflecting
Wiley's ability to increase revenue through the Company's multiple sales
channels. To extend Wiley's product offering in evidence-based medicine, Wiley
Europe and Duodecim Medical Publications Limited of Helsinki, Finland announced
an expanded agreement to grant Wiley the exclusive publishing, sales, and
distribution rights of its English language version of Evidence-Based Medicine
Guidelines (EBM Guidelines). The guidelines are designed to be read on small
screens, and are available via the Internet and through Personal Digital
Assistants (PDA) devices.
Asia, Australia and Canada:
% %
Dollars in thousands 2006 2005 change excluding FX
- -----------------------------------------------------------------------------------------------------
Revenue $123,950 $108,649 14% 12%
Direct Contribution $26,747 $24,868 8% 3%
Contribution Margin 21.6% 22.9%
Wiley's revenue in Asia, Australia, and Canada advanced 14% over the previous
year to $124 million, or 12% excluding foreign currency effects. Higher
Education and secondary school publishing in Australia and P/T sales in Asia and
Canada drove the improvement over the prior year. Direct contribution to profit
for the year increased 8%, or 3% excluding foreign currency effects. Revenue
growth was partially offset by product mix in Canada and Asia.
Wiley Asia experienced growth across all product lines, particularly in India,
Japan and China. Wiley Canada's P/T performance was very strong and its Higher
Education program was solid. In Australia, all three businesses delivered strong
results.
At the end of the third quarter of fiscal year 2006, Wiley Asia acquired the
remaining outstanding shares of Wiley Dreamtech (India) Private LTD. The
acquisition is an important step in the Company's plans to grow Wiley's presence
in India, extending its sales and marketing reach and building local publishing
capabilities in an important and rapidly growing market. Wiley acquired a
majority interest in Dreamtech in 2001 as part of its highly successful
acquisition of Hungry Minds, Inc.
Considerable success was achieved in Canada with the sale of WileyPLUS,
demonstrating the product's global appeal. The number of titles available with
WileyPLUS more than doubled from fiscal year 2005, giving the sales force
opportunity to sell it into more course areas. During fiscal year 2006, Wiley
Canada added to its indigenous P/T program by becoming a key publisher in the
regional real estate markets. Sales throughout the year in real estate
investing, home inspection, property management, tax, and other subcategories
were very strong, as the Company added a number of titles to its portfolio.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance was $55.8 million at the end of
fiscal year 2007, compared with $60.8 million a year earlier. Cash provided by
operating activities in fiscal year 2007 declined $22.0 million to $220.6
million. Included in cash provided by operating activities is a use specifically
related to Blackwell operations post-acquisition of approximately $20 million.
Cash used for working capital included lower accounts and royalties payable,
primarily due to the timing of annual journal royalty payments related to
Blackwell operations and the recognition of non-cash Blackwell related
subscription revenue. Cash for calendar year journal subscriptions is typically
received from November through January. Revenue is recognized evenly over the
calendar year subscription. Due to the timing of the acquisition, most cash for
the current calendar year subscriptions was received by Blackwell prior to the
acquisition and was retained in the acquired business. Additional working
capital changes were driven by higher income tax payments and the timing of
vendor payments partially offset by improved trade collections, lower inventory
growth and higher accrued interest.
Pension contributions in fiscal year 2007 were $8.3 million, compared to $7.0
million in the prior year. The Company anticipates making pension contributions
in fiscal year 2008 of approximately $34.4 million, including approximately $23
million of payments into the Blackwell pension plan in accordance with the terms
of the acquisition agreement.
Cash used for investing activities for fiscal year 2007 was approximately $1.0
billion compared to $113.6 million in fiscal year 2006. The Company invested
$972.9 million in the acquisition of publishing businesses, assets and rights
compared to $31.4 million in the prior year. Significant current year
acquisitions included Blackwell for approximately $1.1 billion in cash plus
liabilities assumed less cash acquired; the acquisition of an online provider of
travel-related content, technology and services; the assets of a publisher of
two medical journals and a publisher of three advertising based medical
journals. As part of the Blackwell acquisition on February 2, 2007, the Company
acquired $42.3 million in marketable securities which were all sold by the
Company during the fourth quarter of fiscal year 2007. In fiscal year 2005, the
Company purchased $15.2 million of marketable securities and subsequently sold
$5.2 million. The remaining $10.0 million were sold during fiscal year 2006.
Cash used for property, plant and equipment and product development increased in
fiscal year 2007 versus the prior year. The additions to property, plant and
equipment were for computer hardware and software to support customer products
and improve productivity and approximately $7.0 million associated with
additional publishing facilities in the United Kingdom. Additions in fiscal year
2006 were principally for computer hardware and software.
Cash provided by financing activities was $810.2 million in fiscal year 2007, as
compared to cash used of $157.3 million in fiscal year 2006. Cash used for
financing activities in fiscal 2007 included the Blackwell acquisition, the
repayment of debt facilities and dividend payments to shareholders. In fiscal
2006, cash was used primarily to purchase treasury stock, repay debt and pay
dividends to shareholders.
In conjunction with the acquisition of Blackwell on February 2, 2007, the
Company and certain subsidiaries 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 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
Agreement. In connection with the early termination of the previous credit
agreements, the Company wrote off approximately $0.5 million of unamortized
origination fees in the fourth quarter of fiscal year 2007.
As of April 30, 2007 the Company had approximately $1.0 billion of debt
outstanding with approximately $375.1 million of unused borrowing capacity.
On February 16, 2007, the Company entered into an interest rate swap agreement,
designated by the Company 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 a portion of 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 counterparty 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.
Current year financing activities include the repurchase of approximately
205,700 shares of Company stock at an average price of approximately $35.38. On
February 4, 2005, the Company repurchased one million shares of its Class A
stock at a price of $32.45 per share from several entities associated with the
Bass group of Fort Worth, Texas. The transaction was paid out of existing cash
balances. Under the current share repurchase program approved by the Company's
Board of Directors in June 2005 the Company has authorization to purchase up to
approximately 1.9 million additional shares of its Class A Common Stock as of
April 30, 2007.
The Company increased its quarterly dividend to shareholders by 11% to $0.10 per
share versus $0.09 per share in the prior year.
The Company's operating cash flow is affected by the seasonality of its U.S.
Higher Education business and receipts from its journal subscriptions. Journal
receipts occur primarily from November through January from companies commonly
referred to as journal subscription agents. Reference is made to the Credit Risk
section, which follows, for a description of the impact on the Company as it
relates to journal agents' financial position and liquidity. Sales in the U.S.
higher education market tend to be concentrated in June through August, and
again in November through January. The Company normally requires increased funds
for working capital from May through September.
Working capital at April 30, 2007 was negative $193.4 million. Working capital
is negative as a result of including, in current liabilities, deferred revenue
related to subscriptions for which cash has been received. This deferred revenue
will be recognized into income as the products are shipped or made available
online to the customers over the term of the subscription. Current liabilities
as of April 30, 2007 include $305.4 million of such deferred subscription
revenue.
The Company has adequate cash and cash equivalents available, as well as
short-term lines of credit to finance its short-term seasonal working capital
requirements. The Company does not have any off-balance-sheet debt.
Projected product development and property, equipment and technology capital
spending for fiscal year 2008 is forecast to be approximately $90 million and
$60 million, respectively, including incremental ongoing spending associated
with Blackwell and significant one-time integration-related capital spending to
merge the operations of the two businesses. These investments will be funded
primarily from internal cash generation, the liquidation of cash equivalents,
and the use of short-term lines of credit.
A summary of contractual obligations and commercial commitments, excluding
interest charge on debt, as of April 30, 2007 is as follows:
Dollars in millions Payments Due by Period
- ---------------------------------------------------------------------------------------------------------------
Within 2-3 4-5 After 5
Contractual Obligations Total Year 1 Years Years Years
- ---------------------------------------------------------------------------------------------------------------
Total Debt $1,000.2 $22.5 $114.7 $525.5 $337.5
Non-Cancelable Leases 295.8 38.8 71.4 60.5 125.1
Minimum Royalty Obligations 121.2 27.8 46.8 30.7 15.9
Other Commitments 28.2 28.2 - - -
----------------------------------------------------------------
Total $1,445.4 $117.3 $232.9 $616.7 $478.5
----------------------------------------------------------------
Included in other commitments above is approximately $23.0 million to be paid
into the Blackwell pension plan in accordance with the terms of the acquisition
agreement.
Market Risk
- -----------
The Company is exposed to market risk primarily related to interest rates,
foreign exchange, and credit risk. It is the Company's policy to monitor these
exposures and to use derivative financial investments and/or insurance contracts
from time to time to reduce fluctuations in earnings and cash flows when it is
deemed appropriate to do so. The Company does not use derivative financial
instruments for trading or speculative purposes.
Interest Rates:
The Company had $1.0 billion of variable rate loans outstanding at April 30,
2007, which approximated fair value. 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 a
portion of 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.
Through the period ending April 30, 2007 the Company recognized a gain in the
hedge contract of approximately $0.4 million which is reflected in interest
expense. At April 30, 2007, the aggregate fair value of the interest rate swap
is a net loss of $2.5 million as reflected in Other Long Term Liabilities in the
Consolidated Statements of Financial Position. A hypothetical 1% change in
interest rates for the $340 million of unhedged variable rate debt would affect
net income and cash flow by approximately $2.2 million.
Foreign Exchange Rates:
The Company is exposed to foreign exchange movements primarily in sterling,
euros, Canadian and Australian dollars, and certain Asian currencies. Under
certain circumstances, the Company may enter into derivative financial
instruments in the form of foreign currency forward contracts as a hedge against
specific transactions, including inter-company purchases. The Company does not
use derivative financial instruments for trading or speculative purposes.
Credit Risk:
The Company's business is not dependent upon a single customer; however, the
industry is concentrated in national, regional, and online bookstore chains.
Although no one book customer accounts for more than 7% of total consolidated
revenue, the top 10 book customers account for approximately 22% of total
consolidated revenue and approximately 42% of total gross trade accounts
receivable at April 30, 2007.
In the journal publishing business, subscriptions are primarily sourced through
journal subscription agents who, acting as agents for library customers,
facilitate ordering by consolidating the subscription orders/billings of each
subscriber with various publishers. Cash is generally collected in advance from
subscribers by the subscription agents and is remitted to the journal publisher,
including the Company, generally prior to the commencement of the subscriptions.
Although at fiscal year-end the Company had minimal credit risk exposure to
these agents, future calendar-year subscription receipts from these agents are
highly dependent on their financial condition and liquidity. Subscription agents
account for approximately 19% of total consolidated revenue and no one agent
accounts for more than 8% of total consolidated revenue. Insurance for these
accounts is not commercially feasible and/or available.
Critical Accounting Policies
- ----------------------------
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenue and expenses during the
reporting period. Management continually evaluates the basis for its estimates;
however, actual results could differ from those estimates, which could affect
the reported results from operations.
Financial Reporting Release No. 60, released by the Securities and Exchange
Commission, requires all companies to discuss critical accounting policies or
methods used in the preparation of financial statements. Note 2 of the " Notes
to Consolidated Financial Statements" includes a summary of the significant
accounting policies and methods used in preparation of our Consolidated
Financial Statements.
Set forth below is a discussion of the Company's more critical accounting
policies and methods.
Revenue Recognition: In accordance with SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements," the Company recognizes revenue
when the following criteria are met: persuasive evidence that an arrangement
exists; delivery has occurred or services have been rendered; the price to the
customer is fixed or determinable; and collectibility is reasonably assured. If
all of the above criteria have been met, revenue is principally recognized upon
shipment of products or when services have been rendered. Subscription revenue
is generally collected in advance, and is deferred and recognized as earned when
the related issue is shipped or made available online over the term of the
subscription. Where a product has been sold with multiple deliverables the
Company follows EITF No. 00-21 "Accounting for Revenue Relationships with
Multiple Deliverables" to determine the timing of revenue recognition.
Collectibility is evaluated based on the amount involved, the credit history of
the customer, and the status of the customer's account with the Company.
Allowance for Doubtful Accounts: The estimated allowance for doubtful accounts
is based on a review of the aging of the accounts receivable balances, the
historical write-off experience, and a credit evaluation of the customer. A
change in the evaluation of a customer's credit could affect the estimated
allowance. The allowance for doubtful accounts is shown as a reduction of
accounts receivable in the accompanying consolidated balance sheets and amounted
to $11.2 million and $6.6 million at April 30, 2007 and 2006, respectively.
Sales Return Reserve: The estimated allowance for sales returns is based on a
review of the historical return patterns associated with the various sales
outlets, as well as current market trends in the businesses in which we operate.
Sales return reserves, net of estimated inventory and royalty costs, are
reported as a reduction of accounts receivable in the Consolidated Statement of
Financial Position and amounted to $56.1 million and $55.8 million at April 30,
2007 and 2006, respectively. A one percent change in the estimated sales return
rate could affect net income by approximately $3.8 million. A change in the
pattern or trends in returns could affect the estimated allowance.
Reserve for Inventory Obsolescence: Inventories are carried at cost or market,
whichever is lower. A reserve for inventory obsolescence is estimated based on a
review of damaged, obsolete, or otherwise unsaleable inventory. The review
encompasses historical unit sales trends by title; current market conditions,
including estimates of customer demand; and publication revision cycles. A
change in sales trends could affect the estimated reserve. The inventory
obsolescence reserve is reported as a reduction of the inventory balance in the
Consolidated Statement of Financial Position and amounted to $32.2 million and
$30.7 million as of April 30, 2007 and 2006, respectively.
Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities
Assumed: In connection with acquisitions, the Company allocates the cost of the
acquisition to the assets acquired and the liabilities assumed based on
estimates of the fair value of such items including goodwill and other
intangible assets. Such estimates include expected cash flows to be generated by
those assets and the expected useful lives based on historical experience,
current market trends, and synergies to be achieved from the acquisition and
expected tax basis of assets acquired. For significant acquisitions, the Company
uses independent appraisers to confirm the reasonableness of such estimates.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase
price paid over the fair value of the net assets of the business acquired. Other
intangible assets principally consist of branded trademarks, acquired
publication rights and non-compete agreements. In accordance with SFAS 142,
goodwill and indefinite-lived intangible assets are no longer amortized but are
reviewed at least annually for impairment, or more often if events or
circumstances occur which would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Other finite-lived intangible assets
continue to be amortized over their useful lives. Acquired publication rights
with definitive lives are amortized on a straight-line basis over periods
ranging from 5 to 40 years. Non-compete agreements are amortized over the terms
of the individual agreement.
Impairment of Long-Lived Assets: Depreciable and amortizable assets are only
evaluated for impairment upon a significant change in the operating or
macroeconomic environment. In these circumstances, if an evaluation of the
undiscounted cash flows indicates impairment, the asset is written down to its
estimated fair value based on discounted future cash flow.
Recent Accounting Standards: In July 2006, the FASB issued FASB Interpretation
No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in a company's
financial statements in accordance with SFAS No. 109 "Accounting for Income
Taxes". FIN 48 provides guidance on recognizing, measuring, presenting and
disclosing in the financial statements uncertain tax positions that a company
has taken or expects to take on a tax return. FIN 48 is effective for the
Company as of May 1, 2007. The Company is currently assessing the impact, if
any, of FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements" ("SFAS
157"). SFAS 157 provides a new single authoritative definition of fair value and
provides enhanced guidance for measuring the fair value of assets and
liabilities and requires additional disclosures related to the extent to which
companies measure assets and liabilities at fair value, the information used to
measure fair value, and the effect of fair value measurements on earnings. SFAS
157 is effective for the Company as of May 1, 2008. The Company is currently
assessing the impact, if any, of FIN 48 on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 158 "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). SFAS 158 requires balance
sheet recognition of the funded status of pension and postretirement benefit
plans. Under SFAS 158, actuarial gains and losses, prior service costs or
credits, and any remaining transition assets or obligations that have not been
recognized under previous accounting standards must be recognized as a component
of accumulated other comprehensive income (loss) within stockholders' equity,
net of tax effects, until they are amortized as a component of net periodic
benefit cost. In addition, the measurement date and the date at which plan
assets and the benefit obligation are measured are required to be the company's
fiscal year end, which is the date currently used by the Company. The Company
adopted SFAS 158 as of April 30, 2007. The adoption of SFAS 158 resulted in a
decrease to Shareholders' Equity and an increase to the accrued pension
liability and other long-term liabilities of approximately $14.1 million before
tax. The adoption of SFAS 158 did not have an impact on the Company's results of
operations and cash flows, or any of the Company's financial agreements or
covenants.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" (SAB 108), to address diversity in practice in quantifying financial
statement misstatements. SAB 108 requires that the Company quantify
misstatements based on their impact on each of our financial statements and
related disclosures. SAB 108 was effective as of April 30, 2007. The adoption of
SAB 108 did not have an impact on the Company's consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
companies with an option to irrevocably elect to measure certain financial
assets and financial liabilities at fair value on an instrument-by-instrument
basis with the resulting changes in fair value recorded in earnings.
The objective of SFAS 159 is to reduce both the complexity in accounting for
financial instruments and the volatility in earnings caused by using different
measurement attributes for financial assets and liabilities.The Company is
currently evaluating the impact of SFAS 159 to determine the effect, if any, it
will have on the consolidated financial position and results of operations. The
Company is required to adopt SFAS 159 as of May 1, 2008.
There have been no other new accounting pronouncements issued during fiscal year
2007 that have had, or are expected to have an impact on the Company's
consolidated financial statements.
"Safe Harbor" Statement Under the
Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements concerning the Company's
operations, performance, and financial condition. Reliance should not be placed
on forward-looking statements, as actual results may differ materially from
those in any forward-looking statements. Any such forward-looking statements are
based upon a number of assumptions and estimates that are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, and are subject to change based on many important factors. Such factors
include, but are not limited to (i) the level of investment in new technologies
and products; (ii) subscriber renewal rates for the Company's journals; (iii)
the financial stability and liquidity of journal subscription agents; (iv) the
consolidation of book wholesalers and retail accounts; (v) the market position
and financial stability of key online retailers; (vi) the seasonal nature of the
Company's educational business and the impact of the used-book market; (vii)
worldwide economic and political conditions; and (viii) the Company's ability to
protect its copyrights and other intellectual property worldwide (ix) other
factors detailed from time to time in the Company's filings with the Securities
and Exchange Commission. The Company undertakes no obligation to update or
revise any such forward-looking statements to reflect subsequent events or
circumstances.
Results by Quarter (Unaudited)
Dollars in millions, except per share data
2007 2006
- --------------------------------------------------------------------------------------------
Revenue
First Quarter $ 263.4 $ 236.7
Second Quarter 284.5 262.7
Third Quarter 296.8 278.2
Fourth Quarter (a) 390.2 266.6
- --------------------------------------------------------------------------------------------
Fiscal Year $ 1,234.9 $ 1,044.2
- --------------------------------------------------------------------------------------------
Operating Income (b)
First Quarter $ 35.0 $ 32.2
Second Quarter 42.0 43.5
Third Quarter 50.7 54.1
Fourth Quarter (a) 33.6 22.9
- --------------------------------------------------------------------------------------------
Fiscal Year $ 161.3 $ 152.7
- --------------------------------------------------------------------------------------------
Net Income (a-e)
First Quarter (c) $ 21.9 $ 27.9
Second Quarter (d) 29.9 27.0
Third Quarter (e) 33.4 40.9
Fourth Quarter (a) 14.4 14.5
- --------------------------------------------------------------------------------------------
Fiscal Year $ 99.6 $ 110.3
- --------------------------------------------------------------------------------------------
Income Per Share (a-e) Diluted Basic Diluted Basic
First Quarter (c) $ 0.38 $ 0.39 $ 0.46 $ 0.47
Second Quarter (d) 0.52 0.53 0.45 0.46
Third Quarter (e) 0.57 0.59 0.69 0.71
Fourth Quarter (a) 0.25 0.25 0.25 0.25
- --------------------------------------------------------------------------------------------
Fiscal Year 1.71 1.75 1.85 1.90
- --------------------------------------------------------------------------------------------
(a) Effective February 2, 2007, the Company finalized the acquisition of
Blackwell Publishing (Holdings) Ltd. ("Blackwell"). See Note 17 to the
Consolidated Financial Statements for details on the operating results of
Blackwell during fiscal year 2007.
(b) Effective May 1, 2006, the Company adopted SFAS 123R which requires that
companies recognize share-based compensation to employees in the Statement
of Income based on the fair value of the share-based awards. The adoption
of SFAS 123R resulted in the recognition of an incremental share-based
compensation expense of $11.3 million ($7.0 million after taxes) or $0.12
per diluted share for the full year ended April 30, 2007, or on a quarterly
basis, approximately $3 million ($2 million after tax) or $0.03 per diluted
share.
(c) In the fourth quarter of fiscal year 2005, the Company elected to
repatriate approximately $94 million of dividends from its European
subsidiaries under the American Jobs Creation Act of 2004, which became law
in October 2004. The law provided for a favorable one-time tax rate on
dividends from foreign subsidiaries. The tax accrued on the dividend in the
fourth quarter of fiscal year 2005 was approximately $7.5 million, or $0.12
per diluted share. Pursuant to guidance issued by the Internal Revenue
Service in May 2005, the Company recorded a tax benefit in the first
quarter of fiscal year 2006 reversing the accrued tax recorded in the
previous year. Neither the first quarter fiscal year 2006 tax benefit nor
the corresponding fourth quarter fiscal year 2005 tax accrual had a cash
impact on the Company.
(d) In the second quarter of fiscal year 2007, the Company recognized a net tax
benefit of $4.2 million, or $0.07 per diluted share. This benefit coincided
with the resolution and settlement of certain tax matters with authorities
in the U.S. and abroad.
(e) In the third quarter of fiscal year 2007, the Company recognized a net tax
benefit of $1.3 million, or $0.02 per diluted share. In the third quarter
of fiscal year 2006, the Company recognized a net tax benefit of $6.8
million, or $0.11 per diluted share. These benefits coincide with the
resolution and settlements of certain tax matters with authorities in the
U.S. and abroad.
Quarterly Share Prices, Dividends, and Related Stockholder Matters
The Company's Class A and Class B shares are listed on the New York Stock
Exchange under the symbols JWa and JWb, respectively. Dividends per share and
the market price range by fiscal quarter for the past two fiscal years were as
follows:
Class A Common Stock Class B Common Stock
--------------------------------------------------------------------------------
Market Price Market Price
------------------------ --------------------------
Dividends High Low Dividends High Low
- ----------------------------------------------------------------------------------------------------------
2007
First Quarter $ 0.10 $ 36.39 $ 32.62 $ 0.10 $36.44 $ 32.61
Second Quarter 0.10 36.15 31.86 0.10 36.01 31.76
Third Quarter 0.10 41.00 35.12 0.10 40.78 35.14
Fourth Quarter 0.10 39.24 36.75 0.10 39.05 36.95
- ----------------------------------------------------------------------------------------------------------
2006
First Quarter $0.090 $43.30 $35.65 $0.090 $43.09 $35.85
Second Quarter 0.090 45.23 36.69 0.090 45.10 37.50
Third Quarter 0.090 41.33 37.50 0.090 41.01 37.82
Fourth Quarter 0.090 39.63 35.83 0.090 39.25 36.01
As of April 30, 2007, the approximate number of holders of the Company's Class A
and Class B Common Stock were 1,213 and 121 respectively, based on the holders
of record and other information available to the Company.
The Company did not repurchase any common stock during the fourth quarter of
fiscal year 2007.
The Company's credit agreement contains certain restrictive covenants related to
the payment of dividends and share repurchases. Under the most restrictive
covenant, approximately $111 million was available for such restricted payments.
Subject to the foregoing, the Board of Directors considers quarterly the payment
of cash dividends based upon its review of earnings, the financial position of
the Company, and other relevant factors.
Selected Financial Data
For the Years Ended April 30,
- ------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
(except per share data) 2007 (a) 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Revenue $1,234,936 $1,044,185 $974,048 $922,962 $853,971
Operating Income 161,279 152,679 141,381 129,379 120,261 (a)
Net Income (c) 99,619 110,328 83,841 88,840 87,275 (b)
Working Capital (d) (193,446) (35,801) (2,393) 17,641 (60,814)
Total Assets 2,531,115 1,026,009 1,032,569 998,946 972,240
Long-Term Debt 977,721 160,496 196,214 200,000 200,000
Shareholders' Equity 529,508 401,840 396,574 415,064 344,004
- -------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Income Per Share (c)
Diluted $1.71 $1.85 $1.35 $1.41 $1.38 (b)
Basic $1.75 $1.90 $1.38 $1.44 $1.42 (b)
Cash Dividends
Class A Common $.40 $ .36 $ .30 $ .26 $ .20
Class B Common $.40 $ .36 $ .30 $ .26 $ .20
(a) Effective February 2, 2007, the Company finalized the acquisition of
Blackwell. See Note 17 to the Consolidated Financial Statements for details
on the operating results of Blackwell during fiscal year 2007.
(b) In the fourth quarter of fiscal year 2002 Wiley finalized its commitment to
relocate the Company's headquarters to Hoboken, N.J. The relocation was
completed in the first quarter of fiscal year 2003. The amounts reported
above include an unusual charge associated with the relocation of
approximately $2.5 million, or $1.5 million after tax equal to $0.02 per
diluted share in fiscal year 2003.
(c) Tax benefits included in fiscal year results are as follows:
- Fiscal year 2007 includes a $5.5 million tax benefit, or $0.09
per diluted share. This benefit coincides with the resolution and
settlements of certain tax matters with authorities in the U.S.
and abroad.
- In the third quarter of fiscal year 2006, the Company recognized
a net tax benefit of $6.8 million, or $0.11 per diluted share,
related to the favorable resolution of certain matters with tax
authorities.
- In the fourth quarter of fiscal year 2005, the Company elected to
repatriate approximately $94 million of dividends from its
European subsidiaries under the American Jobs Creation Act of
2004, which became law in October 2004. The law provided for a
favorable one-time tax rate on dividends from foreign
subsidiaries. The tax accrued on the dividend in the fourth
quarter of fiscal year 2005 was approximately $7.5 million, or
$0.12 per diluted share. Pursuant to guidance issued by the
Internal Revenue Service in May 2005, the Company recorded a tax
benefit in the first quarter of fiscal year 2006 reversing the
accrued tax recorded in the previous year. Neither the first
quarter fiscal year 2006 tax benefit nor the corresponding fourth
quarter fiscal year 2005 tax accrual had a cash impact on the
Company.
- In fiscal year 2004, the Company recognized a net tax benefit of
$3.0 million, or $0.05 per diluted share, related to the
favorable resolution of certain state and federal tax matters,
and an adjustment to accrued foreign taxes.
- Fiscal year 2003 includes a one-time tax benefit of $12.0
million, or $0.19 per diluted share, relating to an increase in
the tax-deductible net asset basis of a European subsidiary's
assets.
(d) Working capital is reduced or negative as a result of including in current
liabilities the deferred revenue related to journal subscriptions for which
the cash has been received. The deferred revenue will be recognized into
income as the journals are shipped or made available online to the
customers over the term of the subscription.
Financial Statements and Supplementary Data
-------------------------------------------
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To our Shareholders
John Wiley and Sons, Inc.:
The management of John Wiley and Sons, Inc. and subsidiaries is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Under the supervision and with the participation of our management, we conducted
an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our evaluation under the framework in Internal Control -
Integrated Framework issued by COSO, our management concluded that our internal
control over financial reporting was effective as of April 30, 2007.
We acquired Blackwell Publishing (Holdings) Ltd. ("Blackwell") on February 2,
2007 and we excluded from our SOX 404 assessment of the effectiveness of our
internal control over financial reporting as of April 30, 2007, Blackwell's
internal control over financial reporting associated with total assets of
$1,485.0 million and total revenue of $105.8 million included in our
consolidated financial statements as of and for the fiscal year ended April 30,
2007.
Our management's assessment of the effectiveness of our internal control over
financial reporting as of April 30, 2007 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which
is included herein.
The Company's Corporate Governance Principles, Committee Charters, Business
Conduct and Ethics Policy and the Code of Ethics for Senior Financial Officers
are published on our web site at www.wiley.com under the "About Wiley--Investor
Relations--Corporate Governance" captions. Copies are also available free of
charge to shareholders on request to the Corporate Secretary, John Wiley & Sons,
Inc., 111 River Street, Hoboken, NJ 07030-5774.
/s/ William J. Pesce
- --------------------------------------------------------
William J. Pesce
President and Chief Executive Officer
/s/ Ellis E. Cousens
- --------------------------------------------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial and Operations Officer
/s/ Edward J. Melando
- --------------------------------------------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
June 28, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Shareholders
of John Wiley & Sons, Inc.:
We have audited the accompanying consolidated statements of financial position
of John Wiley & Sons, Inc. (the "Company") and subsidiaries as of April 30, 2007
and 2006, and the related consolidated statements of income, shareholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended April 30, 2007. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule (as listed in the index to Item 8). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of John Wiley & Sons,
Inc. and subsidiaries as of April 30, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 of the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment," as of May 1, 2006.
As discussed in Note 14 of the consolidated financial statements, the Company
adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R)" on April 30, 2007.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of April 30, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated June xx, 2007 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
/s/ KPMG LLP
New York, New York
June 28, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders
John Wiley & Sons, Inc.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting that John Wiley
and Sons, Inc. (the "Company") and subsidiaries maintained effective internal
control over financial reporting as of April 30, 2007, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment, and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of April 30, 2007, is fairly
stated, in all material respects, based on criteria established in Internal
Control - Integrated Framework issued by COSO. Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of April 30, 2007, based on criteria established in Internal
Control - Integrated Framework issued by COSO.
The Company acquired Blackwell Publishing (Holdings) Ltd. ("Blackwell")
effective February 2, 2007 and management excluded from its assessment of the
effectiveness of the Company's internal control over financial reporting as of
April 30, 2007 Blackwell's internal control over financial reporting associated
with total assets of $1,485.0 million and total revenues of $105.8 million
included in the consolidated financial statements of the Company as of and for
the fiscal year ended April 30, 2007. Our audit of internal control over
financial reporting of the Company also excluded an evaluation of the internal
controls over financial reporting of Blackwell.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated statements of
financial position of the Company as of April 30, 2007 and 2006, and the related
consolidated statements of income, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
April 30, 2007, and our report dated June xx, 2007 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
New York, New York
June 28, 2007
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
April 30
John Wiley & Sons, Inc., and Subsidiaries ---------------------------------
Dollars in thousands 2007 2006
====================================================================================================================================
Assets
Current Assets
Cash and cash equivalents $ 55,750 $ 60,757
Accounts receivable 201,407 158,275
Inventories 112,863 88,578
Deferred income tax benefits 16,734 5,536
Prepaid and other 18,683 13,162
---------------------------------
Total Current Assets 405,437 326,308
---------------------------------
Product Development Assets 79,830 65,641
Property, Equipment and Technology 126,712 102,123
Intangible Assets 1,166,289 302,384
Goodwill 704,143 198,416
Deferred Income Tax Benefits 16,568 3,809
Other Assets 32,136 27,328
---------------------------------
Total Assets $ 2,531,115 $ 1,026,009
=================================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts and royalties payable $ 125,824 $ 97,231
Deferred revenue 305,405 143,923
Accrued income taxes 9,353 24,226
Accrued pension liability 2,139 6,074
Other accrued liabilities 133,662 90,655
Current portion of long-term debt 22,500 -
---------------------------------
Total Current Liabilities 598,883 362,109
---------------------------------
Long-Term Debt 977,721 160,496
Accrued Pension Liability 112,271 56,068
Other Long-Term Liabilities 41,174 35,627
Deferred Income Taxes 271,558 9,869
Shareholders' Equity
Preferred Stock, $1 par value: Authorized - 2 million, Issued - zero - -
Class A Common Stock, $1 par value: Authorized - 180 million,
Issued - 69,387,799 and 69,034,423 69,388 69,035
Class B Common Stock, $1 par value: Authorized - 72 million,
Issued - 13,802,463 and 14,155,839 13,803 14,156
Additional paid-in capital 100,013 69,587
Retained earnings 673,254 596,474
Accumulated other comprehensive gain (loss):
Foreign currency translation adjustment 57,224 25,740
Minimum pension liability adjustment - (18,071)
Unamortized pension and retiree medical, net of tax (30,465) -
Unrealized gain (loss) on interest rate swap (1,802) -
Unearned deferred compensation - (3,512)
---------------------------------
881,415 753,409
Less Treasury Shares At Cost (Class A - 21,735,471 and 22,142,176;
Class B - 3,902,576 and 3,902,576) (351,907) (351,569)
---------------------------------
Total Shareholders' Equity 529,508 401,840
---------------------------------
Total Liabilities and Shareholders' Equity $ 2,531,115 $ 1,026,009
=================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended April 30
John Wiley & Sons, Inc., and Subsidiaries --------------------------------------------------------------
Dollars in thousands, except per share data 2007 2006 2005
=========================================================================================================================
Revenue $1,234,936 $1,044,185 $974,048
Costs and Expenses
Cost of sales 420,952 342,314 325,061
Operating and administrative expenses 632,029 535,694 496,726
Amortization of intangibles 20,676 13,498 10,880
--------------------------------------------------------------
Total Costs and Expenses 1,073,657 891,506 832,667
--------------------------------------------------------------
Operating Income 161,279 152,679 141,381
Interest income and other, net 4,411 1,125 1,505
Interest expense (26,188) (9,960) (7,223)
-------------------------------------------------------------
Net Interest Expense and Other (21,777) (8,835) (5,718)
-------------------------------------------------------------
Income Before Taxes 139,502 143,844 135,663
Provision for Income Taxes 39,883 33,516 51,822
-------------------------------------------------------------
Net Income $99,619 $110,328 $83,841
=============================================================
Income Per Share
Diluted $1.71 $1.85 $1.35
Basic $1.75 $1.90 $1.38
Cash Dividends Per Share
Class A Common $0.40 $0.36 $0.30
Class B Common $0.40 $0.36 $0.30
Average Shares
Diluted 58,287 59,792 62,093
Basic 56,932 58,071 60,721
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 30
John Wiley & Sons, Inc., and Subsidiaries -------------------------------------------------
Dollars in thousands 2007 2006 2005
====================================================================================================================================
Operating Activities
- --------------------
Net Income $ 99,619 $ 110,328 $ 83,841
Noncash Items
Amortization of intangibles 20,676 13,498 10,880
Amortization of composition costs 38,722 36,473 36,026
Depreciation of property, equipment and technology 28,926 32,031 31,447
Stock-based compensation (net of tax) 12,559 4,854 3,632
Excess tax benefits from stock-based compensation (4,455) - -
Reserves for returns, doubtful accounts, and obsolescence 6,931 12,961 1,250
Deferred income taxes 3,604 5,009 17,283
Pension expense, net of contributions 8,297 8,429 (3,914)
Earned Royalty Advances and Other 40,736 21,987 21,461
Changes in Operating Assets and Liabilities
Increase/(Decrease), excluding acquisitions
Accounts receivable 1,167 (20,519) (3,072)
Net taxes payable (6,424) (5,830) 21,362
Inventories (4,060) (12,111) 3,994
Deferred revenue (15,872) 390 14,044
Other accrued liabilities 11,543 9,834 5,436
Accounts and royalties payable (22,465) 26,443 883
Other 1,090 (1,135) (1,067)
-------------------------------------------------
Cash Provided by Operating Activities 220,594 242,642 243,486
-------------------------------------------------
Investing Activities
- --------------------
Additions to product development assets (76,225) (70,921) (64,407)
Additions to property, equipment and technology (31,445) (21,355) (26,826)
Blackwell acquisition, net of cash acquired (953,197) - -
Acquisition of other publishing businesses, assets and rights (19,712) (31,354) (22,527)
Purchase of marketable securities - - (15,203)
Sale of marketable securities 42,334 10,000 5,203
-------------------------------------------------
Cash Used for Investing Activities (1,038,245) (113,630) (123,760)
-------------------------------------------------
Financing Activities
- --------------------
Repayment of long-term debt (620,678) (336,298) (50,000)
Borrowings of long-term debt 1,458,400 303,754 45,992
Purchase of treasury stock (7,278) (108,867) (94,786)
Debt financing costs (8,315) - -
Cash dividends (22,839) (21,103) (18,125)
Proceeds from exercise of stock options and other 6,462 5,173 3,444
Excess tax benefits from stock-based compensation 4,455 - -
-------------------------------------------------
Cash Provided by (Used for) Financing Activities 810,207 (157,341) (113,475)
-------------------------------------------------
Effects of Exchange Rate Changes on Cash 2,437 (315) 1,123
-------------------------------------------------
Cash and Cash Equivalents
Increase (decrease) for year (5,007) (28,644) 7,374
Balance at beginning of year 60,757 89,401 82,027
-------------------------------------------------
Balance at end of year $ 55,750 $ 60,757 $ 89,401
=================================================
Cash Paid During the Year for
Interest $ 12,294 $ 8,001 $ 5,611
Income taxes, net $ 40,422 $ 33,829 $ 12,094
====================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Accumulated
Unearned Other Comp- Total
Common Common Additional Deferred rehensive Share-
John Wiley & Sons, Inc., and Subsidiaries Stock Stock Paid-in Retained Treasury Comp- Income holder's
Dollars in thousands Class A Class B Capital Earnings Stock ensation (Loss) Equity
====================================================================================================================================
Balance at May 1, 2004 $ 68,465 $ 14,725 $ 45,887 $ 441,533 $ (155,609) $(2,134) $ 2,197 $ 415,064
Shares Issued Under Employee Benefit Plans 5,753 1,353 7,106
Purchase of Treasury Shares (94,786) (94,786)
Exercise of Stock Options, including taxes 3,838 790 4,628
Class A Common Stock Dividends Declared (14,938) (14,938)
Class B Common Stock Dividends Declared (3,187) (3,187)
Other 519 (518) (940) (939)
Comprehensive Income:
Net income 83,841 83,841
Foreign currency translation adjustments 10,408 10,408
Minimum liability pension adjustments,
net of a $5,770 tax benefit (10,623) (10,623)
------------
Total Comprehensive Income 83,626
-----------------------------------------------------------------------------------
Balance at May 1, 2005 $ 68,984 $ 14,207 $ 55,478 $ 507,249 $ (248,252) $(3,074) $ 1,982 $ 396,574
Shares Issued Under Employee Benefit Plans 6,795 2,348 9,143
Purchase of Treasury Shares (108,867) (108,867)
Exercise of Stock Options, including taxes 7,314 3,202 10,516
Class A Common Stock Dividends Declared (17,252) (17,252)
Class B Common Stock Dividends Declared (3,851) (3,851)
Other 51 (51) (438) (438)
Comprehensive Income:
Net income 110,328 110,328
Foreign currency translation adjustments (2,791) (2,791)
Minimum liability pension adjustments,
net of a $5,547 tax charge 8,478 8,478
------------
Total Comprehensive Income 116,015
-----------------------------------------------------------------------------------
Balance at May 1, 2006 $ 69,035 $ 14,156 $ 69,587 $ 596,474 $ (351,569) $(3,512) $ 7,669 $ 401,840
Shares Issued Under Employee Benefit Plans 8,149 2,976 11,125
Purchase of Treasury Shares (7,278) (7,278)
Exercise of Stock Options, including taxes 5,663 3,964 9,627
Stock-based compensation expense 20,126 20,126
Class A Common Stock Dividends Declared (18,806) (18,806)
Class B Common Stock Dividends Declared (4,033) (4,033)
Other 353 (353) (3,512) 3,512 -
Adoption of FASB Statement No. 158, net of a
$6,025 tax benefit (8,078) (8,078)
Comprehensive Income:
Net income 99,619 99,619
Foreign currency translation adjustments 31,484 31,484
Minimum liability pension adjustment, net of
a $3,217 tax benefit (4,316) (4,316)
Unrealized loss on interest rate swap,
net of a $1,086 tax benefit (1,802) (1,802)
------------
Total Comprehensive Income 124,985
-----------------------------------------------------------------------------------
Balance at April 30, 2007 $ 69,388 $ 13,803 $ 100,013 $ 673,254 $ (351,907) $ - $ 24,957 $ 529,508
===================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Notes to Consolidated Financial Statements
Note 1 - Description of Business
The Company, founded in 1807, was incorporated in the state of New York on
January 15, 1904. (As used herein the term "Company" means John Wiley & Sons,
Inc., and its subsidiaries and affiliated companies, unless the context
indicates otherwise).
The Company is a global publisher of print and electronic products, providing
content to customers worldwide. Core businesses include professional and
consumer books and subscription products; scientific, technical, and medical
journals, encyclopedias, books, and online products; and educational materials
for undergraduate and graduate students and lifelong learners. The Company has
publishing, marketing, and distribution centers in the United States, Canada,
Europe, Asia, and Australia.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company. Investments in entities in which the Company has at
least a 20%, but less than a majority interest, are accounted for using the
equity method of accounting. Investments in entities in which the Company has
less than a 20% ownership and in which it does not exercise significant
influence are accounted for using the cost method of accounting. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Use of Estimates: The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition: In accordance with SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements," the Company recognizes revenue
when the following criteria are met: persuasive evidence that an arrangement
exists; delivery has occurred or services have been rendered; the price to the
customer is fixed or determinable; and collectibility is reasonably assured. If
all of the above criteria have been met, revenue is principally recognized upon
shipment of products or when services have been rendered. Subscription revenue
is generally collected in advance, and is deferred and recognized as earned when
the related issue is shipped or made available online over the term of the
subscription. Where a product has been sold with multiple deliverables the
Company follows EITF No. 00-21 "Accounting for Revenue Relationships with
Multiple Deliverables" to determine the timing of revenue recognition.
Collectibility is evaluated based on the amount involved, the credit history of
the customer, and the status of the customer's account with the Company.
Cash Equivalents: Cash equivalents consist of highly liquid investments with an
original maturity of three months or less and are stated at cost plus accrued
interest, which approximates market value.
Allowance for Doubtful Accounts: The estimated allowance for doubtful accounts
is based on a review of the aging of the accounts receivable balances, the
historical write-off experience, and a credit evaluation of a customer. A change
in the evaluation of a customer's credit could affect the estimated allowance.
The allowance for doubtful accounts is shown as a reduction of accounts
receivable in the accompanying consolidated balance sheets and amounted to $11.2
million and $6.6 million at April 30, 2007 and 2006, respectively.
Sales Return Reserves: The process which the Company uses to determine its sales
returns and the related reserve provision charged against revenue is based on
applying an estimated return rate to current year sales. This rate is based upon
an analysis of actual historical return experience in the various markets and
geographic regions in which the Company does business. The Company collects,
maintains and analyzes significant amounts of sales returns data for large
volumes of homogeneous transactions. This allows the Company to make reasonable
estimates of the amount of future returns. All available data is utilized to
identify the returns by market and as to which fiscal year the sales returns
apply. This enables management to track the returns in detail and identify and
react to trends occurring in the marketplace, with the objective of being able
to make the most informed judgments possible in setting reserve rates. Sales
return reserves, net of estimated inventory and royalty costs, are reported as a
reduction of accounts receivable in the Consolidated Statement of Financial
Position and amounted to $56.1 million and $55.8 million at April 30, 2007 and
2006, respectively.
Reserve for Inventory Obsolescence: Inventories are carried at cost or market,
whichever is lower. A reserve for inventory obsolescence is estimated based on a
review of damaged, obsolete, or otherwise unsaleable inventory. The review
encompasses historical unit sales trends by title; current market conditions,
including estimates of customer demand; and publication revision cycles. The
inventory obsolescence reserve is reported as a reduction of the inventory
balance in the Consolidated Statement of Financial Position and amounted to
$32.2 million and $30.7 million as of April 30, 2007 and 2006, respectively.
Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities
Assumed: In connection with acquisitions, the Company allocates the cost of the
acquisition to the assets acquired and the liabilities assumed based on
estimates of the fair value of such items, including goodwill and other
intangible assets. Such estimates include discounted estimated cash flows to be
generated by those assets and the expected useful lives based on historical
experience, current market trends, and synergies to be achieved from the
acquisition and expected tax basis of assets acquired. For major acquisitions,
the Company may use an independent appraiser to confirm the reasonableness of
such estimates.
Inventories: Inventories are stated at cost or market, whichever is lower. U.S.
book inventories aggregating $73.9 million and $67.0 million at April 30, 2007
and 2006, respectively, are valued using the last-in, first-out (LIFO) method.
All other inventories are valued using the first-in, first-out (FIFO) method.
Product Development Assets: Product development assets consist of composition
costs and royalty advances to authors. Costs associated with developing any
publication are expensed until the product is determined to be commercially
viable. Composition costs, primarily representing the costs incurred to bring an
edited commercial manuscript to publication including typesetting, proofreading,
design and illustration, etc., are capitalized and generally amortized on a
double-declining basis over estimated useful lives, ranging from 1 to 3 years.
Royalty advances to authors are capitalized and, upon publication, are recovered
as royalties are earned by the authors based on sales of the published works.
Author advances are periodically reviewed for recoverability and a reserve for
loss is maintained, if appropriate.
Advertising Expense: Advertising costs are expensed as incurred. The Company
incurred $39.8 million, $36.9 million and $35.7 million in advertising costs in
fiscal years 2007, 2006 and 2005, respectively.
Property, Equipment and Technology: Property, equipment and technology is
recorded at cost. Major renewals and improvements are capitalized, while
maintenance and repairs are expensed as incurred.
Costs incurred for computer software developed or obtained for internal use are
capitalized during the application development stage and expensed as incurred
during the preliminary project and post-implementation stages. Costs incurred
during the application development stage include costs of materials and
services, and payroll and payroll-related costs for employees who are directly
associated with the software project. Such costs are amortized over the expected
useful life of the related software generally 3 to 5 years. Maintenance,
training, and upgrade costs that do not result in additional functionality are
expensed as incurred.
Buildings, leasehold improvements, and capital leases are amortized over the
lesser of the estimated useful lives of the assets up to 40 years, or over the
duration of the lease, using the straight-line method. Furniture and fixtures
are depreciated principally on the straight-line method over estimated useful
lives ranging from 3 to 10 years. Computer equipment is amortized on a
straight-line basis over estimated useful lives ranging from 3 to 5 years.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase
price paid over the fair value of the net assets of the business acquired. Other
intangible assets principally consist of brands, trademarks, acquired
publication rights, customer relationships and non-compete agreements. Goodwill
and indefinite-lived intangible assets are not amortized but are reviewed at
least annually for impairment, or more often if events or circumstances occur
that would more likely than not reduce the fair market value of a reporting unit
below its' carrying amount. The Company evaluates the recoverability of
indefinite-lived intangible assets by comparing the fair value of the intangible
asset to the carrying value. For goodwill impairment, the Company uses a
two-step impairment test approach at the reporting unit level. In the first step
the fair value for the reporting unit is compared to its book value including
goodwill. In the case that the fair value of the reporting unit is less than the
book value, a second step is performed which compares the implied fair value of
the reporting unit's goodwill to the book value of the goodwill. The fair value
for the goodwill is determined based on the difference between the fair values
of the reporting units and the net fair values of the identifiable assets and
liabilities of such reporting units. If the fair value of the goodwill is less
than the book value, the difference is recognized as impairment.
Finite-lived intangible assets are amortized over their useful lives and
management evaluates the estimated life in accordance with SFAS 142. The most
significant factors in determining the life of these intangibles is the history
and longevity of the brands, trademarks or titles acquired, combined with the
strength of cash flows. Acquired publishing rights that have an indefinite life
are typically characterized by intellectual property with a long and
well-established revenue stream resulting from strong and well-established
imprint/brand recognition in the market.
Acquired publication rights, trademarks, customer relationships and brands with
finite lives are amortized on a straight-line basis over periods ranging from 5
to 40 years. Non-compete agreements are amortized over the terms of the
individual agreement.
Impairment of Long-Lived Assets: Depreciable and amortizable assets are only
evaluated for impairment upon a significant change in the operating or
macroeconomic environment. In these circumstances, if an evaluation of the
undiscounted cash flows indicates impairment, the asset is written down to its
estimated fair value based on discounted future cash flows.
Derivative Financial Instruments: The Company, from time to time, enters into
forward exchange and interest rate swap contracts as a hedge against foreign
currency asset and liability commitments, and anticipated transaction exposures,
including intercompany purchases. The Company accounts for its derivative
instruments in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. Accordingly, all derivatives
are recognized as assets or liabilities and measured at fair value. Derivatives
that are not determined to be effective hedges are adjusted to fair value with a
corresponding effect on earnings. The Company does not use financial instruments
for trading or speculative purposes.
Foreign Currency Gains/Losses: The Company translates the results of operations
of its international subsidiaries using average exchange rates during each
period, whereas balance sheet accounts are translated using exchange rates at
the end of each period. Currency translation adjustments are recorded as a
component of accumulated other comprehensive income (loss) in shareholders'
equity. Included in operating and administrative expenses were net foreign
exchange transaction losses/(gains) of approximately $0.2 million, $0.2 million,
and $(1.8) million in fiscal years 2007, 2006, and 2005, respectively.
Shared-Based Compensation: In December 2004, the FASB issued SFAS No. 123
(revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires that
companies recognize share-based compensation to employees in the Statement of
Income based on the fair value of the share-based awards. The Company adopted
SFAS 123R on May 1, 2006, the beginning of the Company's 2007 fiscal year.
Prior to the adoption of SFAS 123R, the Company accounted for stock-based
compensation using the "intrinsic value" method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and using the disclosure-only provisions of SFAS 123, as amended by
SFAS 148. Under this approach, the value of restricted stock awards was expensed
over their requisite service periods and the imputed cost of stock options were
disclosed only in footnotes to the financial statements.
The Company adopted SFAS 123R effective May 1, 2006 using the modified
prospective approach. Under this approach, awards that are granted, modified or
settled after May 1, 2006 are measured and expensed in accordance with SFAS
123R. Unvested awards that were granted prior to May 1, 2006 are expensed and
recognized in the Company's results of operations, prospectively. No previous
periods are restated.
The adoption of SFAS 123R resulted in the recognition of an incremental
share-based compensation expense of $11.3 million ($7.0 million after taxes) for
the twelve months ended April 30, 2007, which is reflected in operating and
administrative expenses. For the prior year periods, this portion of stock-based
compensation was reflected in the Company's disclosures, but was not recognized
in the consolidated income statements. For comparative purposes, the following
adjusted net income and earnings per share for the twelve months ended April 30,
2007, 2006 and 2005 reflect the amounts which would have been reported in the
income statement if the provisions of SFAS 123R were in effect at that time.
(In thousands, except per share amounts) ----------------------------------- -------------
2007 2006 2005
---------------- --------------- -------------
Net Income, as Reported $99,619 $110,328 $83,841
Add: Stock-Based Compensation Expense
Included in Reported Net Income, Net of Taxes 12,559 4,854 3,632
Deduct: Total Stock-Based Compensation Expense
Determined Under Fair-Value Based
Method for all Awards, Net of Taxes (1) (12,559) (10,942) (8,991)
---------------- --------------- -------------
Adjusted Net Income $99,619 $104,240 $78,482
================ =============== =============
Reported Earnings Per Share:
Diluted $1.71 $1.85 $1.35
Basic $1.75 $1.90 $1.38
Adjusted Earnings Per Share:
Diluted $1.71 $1.74 $1.26
Basic $1.75 $1.80 $1.29
(1) Total stock-based compensation expense for all awards presented in the
table above is net of taxes of $7.6 million, $6.6 million and $5.4 million
for the years ended April 30, 2007, 2006 and 2005, respectively.
Pursuant to the provisions of SFAS 123R effective May 1, 2006, the Company
records share-based compensation as a charge to earnings reduced by the
estimated cost of anticipated forfeited awards. As such, share-based
compensation expense is only recognized for those awards that are expected to
ultimately vest. Stock-based compensation expense associated with performance
restricted share awards is recognized based on management's best estimates of
the achievement of the performance goals specified in such awards and the
estimated number of shares that will be earned. The cumulative effect on current
and prior periods of a change in the estimated number of performance share
awards, or estimated forfeiture rate is recognized as an adjustment to earnings
in the period of the revision.
Concurrent with the adoption of SFAS 123R the Company accelerated the
recognition of compensation expense related to post-adoption awards granted to
near-retirement and retirement-eligible employees to reflect accelerated vesting
as provided in the Company's Key Employee Stock Plan. The impact of the change
was not significant.
Recently Issued Accounting Pronouncements: In July 2006, the FASB issued FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48").
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a
company's financial statements in accordance with SFAS No. 109 "Accounting for
Income Taxes". FIN 48 provides guidance on recognizing, measuring, presenting
and disclosing in the financial statements uncertain tax positions that a
company has taken or expects to take on a tax return. FIN 48 is effective for
the Company as of May 1, 2007. The Company is currently assessing the impact, if
any, of FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements" ("SFAS
157"). SFAS 157 provides a new single authoritative definition of fair value and
provides enhanced guidance for measuring the fair value of assets and
liabilities and requires additional disclosures related to the extent to which
companies measure assets and liabilities at fair value, the information used to
measure fair value, and the effect of fair value measurements on earnings. SFAS
157 is effective for the Company as of May 1, 2008.The Company is currently
assessing the impact, if any, of SFAS 157 on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 158 "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). SFAS 158 requires balance
sheet recognition of the funded status of pension and postretirement benefit
plans. Under SFAS 158, actuarial gains and losses, prior service costs or
credits, and any remaining transition assets or obligations that have not been
recognized under previous accounting standards must be recognized as a component
of accumulated other comprehensive income (loss) within shareholders' equity,
net of tax effects, until they are amortized as a component of net periodic
benefit cost. In addition, the measurement date and the date at which plan
assets and the benefit obligation are measured are required to be the company's
fiscal year end, which is the date currently used by the Company. The Company
adopted SFAS 158 as of April 30, 2007. The adoption of SFAS 158 resulted in a
decrease to Shareholders' Equity and an increase to the accrued pension
liability and other long-term liabilities of approximately $14.1 million before
tax. The adoption of SFAS 158 did not have an impact on the Company's results of
operations and cash flows, or any of the Company's financial agreements or
covenants.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"), to address diversity in practice in quantifying
financial statement misstatements. SAB 108 requires that the Company quantify
misstatements based on their impact on each of our financial statements and
related disclosures. SAB 108 was effective as of April 30, 2007. The adoption of
SAB 108 did not have an impact on the Company's consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
companies with an option to irrevocably elect to measure certain financial
assets and financial liabilities at fair value on an instrument-by-instrument
basis with the resulting changes in fair value recorded in earnings. The
objective of SFAS 159 is to reduce both the complexity in accounting for
financial instruments and the volatility in earnings caused by using different
measurement attributes for financial assets and liabilities. The Company is
currently evaluating the impact of SFAS 159 to determine the effect, if any, it
will have on the consolidated financial position and results of operations. The
Company is required to adopt SFAS 159 as of May 1, 2008.
There have been no other new accounting pronouncements issued during fiscal year
2007 that have had, or are expected to have a material impact on the Company's
consolidated financial statements.
Note 3 - Income Per Share
A reconciliation of the shares used in the computation of net income per share
for the years ended April 30 follows (in thousands):
2007 2006 2005
- --------------------------------------------------------------------------------
Weighted Average Shares
Outstanding 57,191 58,405 60,886
Less: Unearned Deferred (259) (334) (165)
Compensation Shares
- --------------------------------------------------------------------------------
Shares Used for Basic Income 56,932 58,071 60,721
Per Share
Dilutive Effect of Stock Option
and Other Stock Awards 1,355 1,721 1,372
- --------------------------------------------------------------------------------
Shares Used for Diluted 58,287 59,792 62,093
Income Per Share
- --------------------------------------------------------------------------------
For the years ended April 30, 2007, 2006, and 2005 options to purchase Class A
Common Stock of 2,587,569, 1,007,000 and zero shares, respectively, have been
excluded from the shares used for diluted income per share as their inclusion
would have been antidilutive.
Note 4 - Acquisitions
Fiscal Year 2007:
Blackwell Acquisition:
Effective February 2, 2007 the Company finalized the previously announced
acquisition of all of the outstanding shares of Blackwell Publishing (Holdings)
Ltd. ("Blackwell"). Blackwell publishes journals and books for the academic,
research and professional markets focused on science, technology, medicine and
social sciences and humanities. Headquartered in Oxford, England, Blackwell also
maintains publishing locations in the United States, Asia, Australia, Denmark
and Germany. Approximately 50% of Blackwell's annual revenue is from the United
States. The combination of Blackwell's publications with the Company's existing
scientific, technical and medical business results in an extensive portfolio of
approximately 1,250 journals. Blackwell has over 800 journal titles with
approximately 63% being affiliated with a professional society. The purchase
price included $1.1 billion ((pound)572 million) of cash plus liabilities
assumed less cash acquired.
Blackwell's competition has consisted mostly of large STM publishers. Blackwell
has maintained a strong market share based on its content, distribution
abilities, successful society relationships and pricing.
The acquisition of Blackwell will enhance Wiley's global position as a provider
of must-have content and services, expand and diversify its journal portfolio,
increase both print and on-line advertising revenue, increase society
relationships, accelerate growth globally and enhance the delivery of content
on-line through Wiley InterScience. The infrastructure of the Wiley and
Blackwell organizations will be combined based on opportunities to generate
synergies and cost savings and best practices in the industry.
The Company accounted for the acquisition using the purchase method of
accounting in accordance with the provisions of SFAS No. 141, "Business
Combinations" ("SFAS 141"). The Company included the operations of Blackwell in
its consolidated financial statements from February 2, 2007 through April 30,
2007.
The total purchase price was preliminarily allocated to Blackwell's tangible and
identifiable intangible assets and liabilities based on their estimated fair
values as of February 2, 2007 as set forth below (in thousands):
Current Assets $ 332,000
Product Development Assets 21,000
Property, Equipment and Technology 15,300
Intangible Assets 843,300
Goodwill 485,900
Other Noncurrent Assets 7,500
-------------------
Total Assets Acquired $ 1,705,000
-------------------
Deferred Revenue $ 172,300
Other Current Liabilities 125,400
Noncurrent Deferred Taxes Liabilities 256,500
Other Noncurrent Liabilities 29,800
-------------------
Total Liabilities Assumed $ 584,000
-------------------
Net Assets Acquired $ 1,121,000
====================
The purchase price allocation above includes approximately $3.5 million of
accrued direct acquisition costs consisting of regulatory filing fees, legal and
accounting fees and other external costs directly related to the acquisition.
Included in current assets above is $188.9 million of cash acquired. The primary
areas of purchase price allocation that are not yet finalized consist of
Blackwell-related severance and exit costs. Adjustments to amounts recorded as
of the close of the acquisition related to the finalization of Blackwell-related
severance and exit costs will result in adjustments to goodwill or will be
recorded in post-acquisition operating results, depending on the nature and
timing of such adjustments.
Unaudited Pro Forma Financial Information
- -----------------------------------------
The following unaudited pro forma statement of operations information gives
effect to the Blackwell acquisition and related financing as if it had occurred
at the beginning of each of the fiscal years presented. The pro forma
information is presented for informational purposes only and is not indicative
of the results of operations that would have been achieved if the acquisition
and the $1.35 billion Credit Agreement had taken place at the beginning of each
of the periods presented nor is it indicative of future financial performance.
The pro forma financial information for each of the periods presented includes
the recurring effect from the amortization of acquired intangible assets and the
increase in interest expense associated with the Credit Agreement. Cost savings
from future synergies are not reflected in the pro forma financial information.
The unaudited pro forma statement of operations for the year ended April 30,
2007 combines the historical results of Wiley for the year ended April 30, 2007,
which includes post-acquisition Blackwell results for the period from February
2, 2007 to April 30, 2007, and the historical results of pre-acquisition
Blackwell for the period from April 1, 2006 to December 31, 2006. The unaudited
pro forma statement of operations for the year ended April 30, 2006 combines the
historical results of Wiley for the year ended April 30, 2006 and, due to
differences in our reporting periods, the historical results of Blackwell, for
the twelve months ended March 31, 2006.
For the Years
Ended April 30,
In thousands, except per share data 2007 2006
- --------------------------------------------------------------------------------
Revenue $ 1,558,887 $ 1,431,958
Net Income $ 108,301 $ 116,777
Net Income Per Common Share - Basic $ 1.90 $ 2.01
Net Income Per Common Share - Diluted $ 1.86 $ 1.95
Goodwill and Acquisition Related Intangible Assets
- --------------------------------------------------
All of the Blackwell goodwill acquired of $485.9 million was recorded within the
Blackwell segment. None of the goodwill is expected to be deductible for tax
purposes. The balances and weighted average amortization period assigned to each
intangible asset class of acquisition related intangible assets as of February
2, 2007 were as follows:
Weighted Average Cost of Blackwell
Amortization Period Acquisition Related
In thousands (in years) Intangible Assets
- --------------------------------------------------------------------------------
Acquired Publication Rights 37 $629,900
Trademarks and Trade Names Indefinite 143,400
Customer Relationships 20 70,000
- --------------------------------------------------------------------------------
Total $843,300
- --------------------------------------------------------------------------------
The total amortization expense for Blackwell acquisition related intangible
assets was $5.5 million for the year ended April 30, 2007, and is included in
the caption "Amortization of intangibles" on the Company's consolidated
Statements of Income. Estimated future amortization expense related to
acquisition for the next five years is $22.0 million per year.
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 arrangements, typically with membership
organizations referred to as "Societies" which specialize in the particular
field or discipline. Owned journal publishing rights of approximately $487.8
million are expected to have an estimated useful life of 40 years. Joint and
non-owned journal publishing rights are expected to have estimated useful lives
of 40 and 30 years, respectively. 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 an estimated useful life of approximately 20 years. Book
publishing rights are expected to have estimated useful lives 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. The discount rates used to determine present value of net
cashflows 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.
As part of the strategic acquisition plan, the Company plans to reorganize
certain functions, cancel certain contractual obligations and close duplicate
facilities. This will include termination and relocation of employees. Estimated
costs associated with employee severance and relocation totaled $7.8 million.
These costs were included as a component of net assets acquired. The costs
associated with the closure of duplicate facilities have not yet been
determined.
Other Fiscal Year 2007 Acquisitions:
Excluding the Blackwell acquisition, in fiscal year 2007 the Company acquired
certain other businesses, assets and rights for $19.7 million, including
acquisition costs plus liabilities assumed. Approximately $14.1 million of
brands, trademarks and acquired publishing rights and $6.6 million of goodwill
were recorded in the aggregate. The brands, trademarks and acquired publishing
rights are being amortized over a weighted average period of approximately 11
years. The acquisitions consist primarily of the following:
On July 20, 2006, the Company acquired the assets of a publisher of two medical
journals. The cost of acquisition was principally allocated to acquired
publication rights and is being amortized over a 15-year period.
On October 18, 2006, the Company acquired an on-line provider of travel-related
content, technology, and services. The acquisition cost was allocated to
goodwill, branded trademarks and the net tangible assets acquired consisting
primarily of computer software. The branded trademarks are being amortized over
a 10-year period.
On January 24, 2007, the Company acquired the assets of a publisher of three
advertising based journals. The cost of acquisition was primarily allocated to
acquired publication rights and is being amortized over a 10-year period.
On March 20, 2007, the Company acquired the assets of a publisher of books and
periodicals for faculty and administrators in higher education. The cost of the
acquisition was mainly recorded as acquired publication rights and is being
amortized over a 10-year period.
Fiscal Year 2006:
During fiscal year 2006, the Company acquired certain businesses, assets and
rights in multiple transactions aggregating $31.4 million, including related
acquisition costs plus liabilities assumed. Approximately $26.3 million of the
aggregate purchase price was allocated to brands and trademarks and acquired
publishing rights and $4.9 million to goodwill. The brands, trademarks and
acquired publishing rights will be amortized over a weighted average period of
approximately 10 years. The acquisitions consisted primarily of the following:
In the first quarter Wiley acquired substantially all the assets of a global
publisher of books and software, specializing in information technology business
certification materials. The acquisition cost was allocated to brands and
trademarks, goodwill and tangible net assets, which consisted of accounts
receivable, inventory, accrued royalties, accounts payable and other accrued
liabilities. The brands and trademarks are being amortized over a 15-year
period.
In the first quarter, the Company acquired the publishing rights to a newsletter
division of a leading publisher of mental health and addiction information. The
majority of the acquisition was recorded as acquired publication rights and is
being amortized over a 10-year period.
In the second quarter the Company acquired a leading provider of evidence-based
medicine content. The acquisition cost was allocated to goodwill, brands and
trademarks, customer relationships and other assets and liabilities which
consisted of accounts receivable, capitalized software and deferred subscription
revenues. The brands, trademarks and customer relationships are amortized over a
10-year period.
In the third quarter the Company acquired the publishing rights to the journal
Dialysis & Transplantation, a source of nephrology and renal transplantation
information to nephrologists, surgeons, internists and other physicians and
healthcare professionals. The majority of the acquisition was recorded as
acquired publication rights and is being amortized over a 10-year period.
Fiscal Year 2005:
During fiscal year 2005, the Company acquired certain business assets and rights
for $22.5 million, including related acquisitions costs plus liabilities
assumed. The acquisitions consisted primarily of the following:
- The publishing rights to the Journal of Microscopy and Analysis, a
controlled circulation journal. The acquired publication rights are
being amortized over a 15-year period.
- The publishing rights to the reference portfolio of the Macmillan
Nature Publishing Group. The acquired publication rights are being
amortized over a 10-year period.
- Whurr Publishers Limited, a leading publisher for the Nursing, Speech
and Language Therapy and Audiology, Psychology and Special Education
communities in the U.K. The acquired publication rights are being
amortized over a 15-year period.
Note 5 - Marketable Securities
The Company accounts for these securities as available-for-sale in accordance
with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." As part of the Blackwell acquisition on February 2, 2007, the
Company acquired $42.3 million in marketable securities which were all sold by
the Company during the fourth quarter of fiscal year 2007. In fiscal year 2005,
the Company purchased $15.2 million of marketable securities and subsequently
sold $5.2 million. The remaining $10.0 million were sold during fiscal year
2006. There were no securities outstanding as of April 30, 2007 and 2006.
Note 6 - Inventories
Inventories at April 30 were as follows (in thousands):
2007 2006
- --------------------------------------------------------------------------------
Finished Goods $99,958 $79,389
Work-in-Process 9,949 6,704
Paper, Cloth, and Other 7,094 6,024
- --------------------------------------------------------------------------------
117,001 92,117
LIFO Reserve (4,138) (3,539)
- --------------------------------------------------------------------------------
Total Inventories $112,863 $88,578
================================================================================
Note 7 - Product Development Assets
Product development assets consisted of the following at April 30 (in
thousands):
2007 2006
- --------------------------------------------------------------------------------
Composition Costs $42,976 $37,073
Royalty Advances 36,854 28,568
- --------------------------------------------------------------------------------
Total $79,830 $65,641
================================================================================
Composition costs are net of accumulated amortization of $113.7 million and
$96.2 million as of April 30, 2007 and 2006, respectively.
Note 8 - Property, Equipment and Technology
Property, equipment and technology consisted of the following at April 30 (in
thousands):
2007 2006
- --------------------------------------------------------------------------------
Land and Land Improvements $5,449 $4,455
Buildings and Leasehold Improvements 87,596 65,456
Furniture, Fixtures and Warehouse Equipment 83,255 54,402
Computer Equipment and Capitalized Software 184,326 158,425
- --------------------------------------------------------------------------------
360,626 282,738
Accumulated Depreciation (233,914) (180,615)
- --------------------------------------------------------------------------------
Total $126,712 $102,123
================================================================================
The net book value of capitalized software costs was $22.3 million and $23.7
million as of April 30, 2007 and 2006, respectively. Depreciation expense
recognized in 2007, 2006, and 2005 for capitalized software costs was
approximately $12.0 million, $14.4 million, and $14.8 million, respectively.
Note 9 - Goodwill and Other Intangible Assets
The following table summarizes the activity in goodwill by segment (in
thousands):
As of April Acquisitions and Cumulative Translation As of April
30, 2006 Dispositions and Other Adjustments 30, 2007
- ------------------------------------------------------------------------------------------------------------------------
P/T $146,707 $6,556 $450 $153,713
STM 28,072 - - 28,072
European 21,266 - 2,052 23,318
Blackwell - 485,879 10,795 496,674
Other 2,371 - (5) 2,366
- ------------------------------------------------------------------------------------------------------------------------
Total $198,416 $492,435 $13,292 $704,143
========================================================================================================================
Identified intangible assets as of April 30, 2007 and 2006 were as follows (in
thousands):
2007 2006
----------------------------------- ----------------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
----------------------------------- ----------------------------------
Intangible Assets with Determinable Lives
- -----------------------------------------
Acquired Publishing Rights $ 842,182 $ (88,289) $ 181,280 $ (70,330)
Brands & Trademarks 17,224 (2,126) 15,200 (921)
Covenants not to Compete 3,383 (1,549) 2,250 (906)
Customer Relationships 71,503 (883) - -
----------------------------------- ----------------------------------
934,292 (92,847) 198,730 (72,157)
----------------------------------- ----------------------------------
Intangible Assets with Indefinite Lives
- ---------------------------------------
Acquired Publishing Rights 120,295 - 117,911 -
Brands & Trademarks 204,549 - 57,900 -
----------------------------------- ----------------------------------
$ 1,259,136 $ (92,847) $ 374,541 $ (72,157)
=================================== ==================================
Note 10 - Other Accrued Liabilities
Other accrued liabilities as of April 30 consisted of the following (in
thousands):
2007 2006
- --------------------------------------------------------------------------------
Accrued Compensation $61,078 $53,506
Accrued Interest 14,327 2,155
Other 58,257 34,994
- --------------------------------------------------------------------------------
Total $133,662 $90,655
================================================================================
The increase in non-amortizable Brands & Trademarks is related to the Blackwell
acquisition (See Note 4). Based on the current amount of intangible assets
subject to amortization, the estimated amortization expense for each of the
succeeding 5 fiscal years are as follows: 2008 - $38.4 million; 2009 - $38.9
million; 2010 - $35.6 million; 2011 - $34.3 million; and 2012 - $33.6 million.
Note 11 - Income Taxes
The provision for income taxes for the years ending April 30 were as follows (in
thousands):
2007 2006 2005
- --------------------------------------------------------------------------------
Current Provision(Benefit)
US - Federal $23,684 $15,663 $22,078
International 9,872 10,809 11,335
State and Local 2,723 2,035 1,126
- --------------------------------------------------------------------------------
Total Current Provision $36,279 $28,507 $34,539
- --------------------------------------------------------------------------------
Deferred Provision(Benefit)
US - Federal $(2,409) $ (62) $11,156
International 6,265 5,054 4,656
State and Local (252) 17 1,471
- --------------------------------------------------------------------------------
Total Deferred Provision $3,604 $ 5,009 $17,283
- --------------------------------------------------------------------------------
Total Provision $39,883 $33,516 $51,822
================================================================================
Tax benefits related to the exercise of stock options and vesting of restricted
stock held by employees amounted to $5.6 million, $5.4 million, and $4.6 million
for fiscal years 2007, 2006, and 2005, respectively, which reduce current income
taxes payable. Included in the fiscal year 2007 tax benefit is $4.5 million of
excess tax benefits recognized in accordance with FAS 123R related to exercises
and vesting of awards within the Company's various stock compensation plans. The
remaining $1.1 million benefit in 2007 is the current benefit taken on
previously recognized deferred tax assets on restricted stock awards.
International and United States pretax income for the year ended April 30 was as
follows (in thousands):
2007 2006 2005
- --------------------------------------------------------------------------------
International $58,165 $51,444 $45,491
United States 81,337 92,400 90,172
- --------------------------------------------------------------------------------
Total $139,502 $143,844 $135,663
================================================================================
The Company's effective income tax rate as a percentage of pretax income
differed from the U.S. federal statutory rate as shown below:
2007 2006 2005
- --------------------------------------------------------------------------------
U.S. Federal Statutory Rate 35.0% 35.0% 35.0%
State Income Taxes,
Net of U.S. Federal Tax Benefit 1.1 0.9 1.3
Tax Benefit from MFG/EIE (1.3) (1.7) (1.5)
Deductions/Credits
Earnings Taxed at Other than U.S. (3.0) (1.5) (1.0)
Statutory Rates
Tax Charge (Credit) on Repatriated - (5.2) 5.5
Foreign Dividends under AJCA
Tax Adjustments (3.9) (4.7) -
Other, Net 0.7 0.5 (1.1)
- ------------------------------------------------------- ------------------------
Effective Income Tax Rate 28.6% 23.3% 38.2%
- --------------------------------------------------------------------------------
Tax Charge (Credit) on Repatriated Foreign Dividends: During the fourth quarter
of fiscal year 2005, the Company elected to repatriate approximately $94 million
of dividends from foreign subsidiaries under the American Jobs Creation Act
(AJCA) of 2004. The law provides for a favorable one-time tax rate on dividends
from foreign subsidiaries. The tax accrued on these dividends in fiscal year
2005 was approximately $7.5 million. Pursuant to guidance issued by the Internal
Revenue Service in May 2005, the Company recorded a tax benefit in the first
quarter of fiscal year 2006 reversing the accrued tax recorded in the previous
year. Neither the first quarter fiscal year 2006 tax benefit nor the
corresponding fourth quarter fiscal year 2005 tax accrual had a cash impact on
the Company.
Tax Adjustments: In fiscal years 2007 and 2006 the Company reported tax benefits
of $5.5 million and $6.8 million related to the favorable resolution of certain
federal, state and foreign tax matters with tax authorities.
Deferred taxes result from temporary differences in the recognition of revenue
and expense for tax and financial reporting purposes. It is more likely than not
that the results of future operations will generate sufficient taxable income to
realize the deferred tax assets. The significant components of deferred tax
assets and liabilities at April 30 were as follows (in thousands):
2007 2006
- -------------------------------------------------------------------------------------------
Net Operating Loss $1,035 $ -
Reserve for Sales Returns and Doubtful Accounts 16,638 12,652
Inventory (3,840) (1,848)
Accrued Expenses 17,611 11,964
Retirement and Post-Employment Benefits 29,224 11,909
Intangible and Fixed Assets (301,572) (35,201)
- -------------------------------------------------------------------------------------------
Net Deferred Tax Assets (Liabilities) $(240,904) $(524)
- -------------------------------------------------------------------------------------------
The Company intends to continue to reinvest earnings outside the U.S. for the
foreseeable future and, therefore, has not recognized any U.S. tax expense on
foreign earnings. At April 30, 2007, the undistributed earnings of international
subsidiaries approximated $75.8 million and, if remitted currently, would result
in $6.2 million tax.
Note 12 - Debt and Available Credit Facilities
At April 30, 2007 2006
- -------------------------------------------------------------------------------------------
$675 million Revolving Credit Facility - Due 2012 $323,000 $ -
$675 million Term Loan - Due 2008 - 2013 675,000 -
$300 million Revolving Credit Facility - Due November 2010 - 150,000
(pound)50 million Revolving Credit Facility - Due April 2009 - 10,496
Other Notes Payable- Due July 2008 2,221 -
- -------------------------------------------------------------------------------------------
Total Debt $1,000,221 $160,496
Less: Current Portion (22,500) -
- -------------------------------------------------------------------------------------------
Total Long-Term Debt $977,721 $160,496
===========================================================================================
In connection with the Blackwell 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 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 wrote 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 $0.2 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 a portion of 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. Through the period ending April 30, 2007 the Company
recognized a gain on the hedge contract of approximately $0.4 million which is
reflected in interest expense. At April 30, 2007, the aggregate fair value of
the interest rate swap is a net loss of $2.5 million as reflected in Other Long
Term Liabilities in the Consolidated Statements of Financial Position.
In the event of a change of control, as defined, the banks have the option to
terminate the agreements and require repayment of any amounts outstanding.
The credit agreements contain certain restrictive covenants related to Leverage
Ratio, Fixed Charge coverage ratio, property, equipment and technology
expenditures, and restricted payments, including a limitation for dividends paid
and share repurchases. Under the most restrictive covenant, approximately $111
million was available for such restricted payments as of April 30, 2007.
The Company and its subsidiaries have other short-term lines of credit
aggregating $23 million at various interest rates. No borrowings under the
credit lines were outstanding at April 30, 2007, 2006 and 2005.
The Company's total available lines of credit as of April 30, 2007 were
approximately $1,375 million. The weighted average interest rates on long term
debt outstanding during fiscal years 2007 and 2006 were 6.13% and 4.24%,
respectively. As of April 30, 2007 and 2006, the weighted average interest rates
for the long-term debt were 6.36% and 4.79% respectively. Based on estimates of
interest rates currently available to the Company for loans with similar terms
and maturities, the fair value of notes payable and long-term debt approximate
the carrying value.
Total debt maturing in each of the next five years are: 2008 - $22.5 million;
2009 - $47.2 million; 2010 - $67.5 million; 2011 - $90.0 million and 2012 -
$435.5 million.
Note 13 - Commitments and Contingencies
The following schedule shows the composition of rent expense for operating
leases (in thousands):
2007 2006 2005
- -------------------------------------------------------------------------------
Minimum Rental $31,142 $27,180 $25,897
Less: Sublease Rentals (1,754) (1,563) (1,248)
- -------------------------------------------------------------------------------
Total $29,388 $25,617 $24,649
- -------------------------------------------------------------------------------
Future minimum payments under operating leases aggregated $295.8 million at
April 30, 2007. Future annual minimum payments under these leases are
approximately $38.8 million, $36.0 million, $35.3 million, $33.0 million, and
$27.5 million for fiscal years 2008 through 2012, respectively. Future minimum
rentals to be received under non-cancelable subleases aggregate $6.3 million at
April 30, 2007. Rent expense associated with operating leases that include
scheduled rent increases and tenant incentives, such as rent holidays, is
recorded on a straight-line basis over the term of the lease.
The Company is involved in routine litigation in the ordinary course of its
business. In the opinion of management, the ultimate resolution of all pending
litigation will not have a material effect upon the financial condition or
results of operations of the Company.
Note 14 - Retirement Plans
The Company and its principal subsidiaries have contributory and noncontributory
retirement plans that cover substantially all employees. The plans generally
provide for employee retirement between the ages of 60 and 65, and benefits
based on length of service and compensation, as defined.
In fiscal year 2005, the U.S. retirement plan was amended to change the method
used to compute retirement benefits. The new formula applies to current
compensation (as defined) whereas the previous formula was based upon the
highest average compensation for the three consecutive years ended December 31,
1997. Benefits accrued through December 31, 2004 under the "previous" plan were
frozen as of that date, and are supplemented annually by additions calculated
under the new formula.
Effective April 30, 2007, the Company adopted the recognition and disclosure
provisions of Statement No. 158 which requires employers to recognize in their
balance sheets the overfunded or underfunded status of defined benefit
postretirement plans, measured as the difference between the fair value of plan
assets and the projected benefit obligation. Employers must recognize the change
in the funded status of the plan in the year in which the change occurs through
accumulated other comprehensive income. Statement No. 158 also requires plan
assets and obligations to be measured as of the employers' balance sheet date.
The measurement provision of Statement No. 158 will not have an impact to the
Company, as its current measurement date is April 30.
Prior to the adoption of the recognition provisions of Statement No. 158, the
Company accounted for its defined benefit plans under Statement No. 87.
Statement No. 87 required that a liability (additional minimum pension liability
or "AML") be recorded when the accumulated benefit obligation ("ABO") liability
exceeded the fair value of plan assets. Any adjustment was recorded as a
non-cash charge to accumulated other comprehensive income in shareholders'
equity. Under Statement No. 87, changes in the funded status were not
immediately recognized, rather they were deferred and recognized ratably over
future periods. Upon adoption of the recognition provisions of Statement No.158,
the Company recognized the amounts of prior changes in the funded status of its
defined benefit plans through accumulated other comprehensive income.
The amounts in accumulated other comprehensive income that are expected to be
recognized as components of net periodic benefit cost during the next fiscal
year are as follows (in thousands):
Funded Unfunded Total
--------------------------------------------------
Actuarial Loss $2,085 $452 $2,537
Prior Service Cost 469 160 629
- --------------------------------------------------------------------------------
Total $2,554 $612 $3,166
- --------------------------------------------------------------------------------
The adoption of Statement No. 158 had no effect on the Company's consolidated
statement of operations for the year ended April 30, 2007, or for any prior
period presented and does not have a material impact to any of the Company's
debt covenants under its various credit agreements. Net pension expense included
below for international plans amounted to approximately $10.2 million, $7.1
million and $6.7 million for fiscal years 2007, 2006 and 2005, respectively.
The Company has agreements with certain officers and senior management that
provide for the payment of supplemental retirement benefits during each of the
10 years after the termination of employment. Under certain circumstances,
including a change of control as defined, the payment of such amounts could be
accelerated on a present value basis.
The components of net pension expense for the defined benefit plans were as
follows (in thousands):
2007 2006 2005
- --------------------------------------------------------------------------------
Service Cost $13,210 $10,998 $8,492
Interest Cost 15,408 11,590 10,791
Expected Return on Plan Assets (14,850) (10,988) (9,146)
Net Amortization of Prior Service 742 625 564
Cost and Transition Asset
Recognized Net Actuarial Loss 2,200 3,244 2,017
- --------------------------------------------------------------------------------
Net Pension Expense $16,710 $15,469 $12,718
- --------------------------------------------------------------------------------
The weighted-average assumptions used to determine net pension expense for the
years ended April 30 were as follows:
2007 2006 2005
- --------------------------------------------------------------------------------
Discount Rate 5.8% 5.6% 6.1%
Rate of Compensation Increase 4.1% 3.8% 3.6%
Expected Return on Plan Assets 8.2% 8.4% 8.0%
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the retirement plans with accumulated benefit obligations in
excess of plan assets were $267.3 million, $248.7 million, and $170.3 million,
respectively, as of April 30, 2007, and $224.1 million, $204.2 million and
$147.4 million, respectively, as of April 30, 2006.
The following table sets forth the changes in and the status of the plans'
assets and benefit obligations. The unfunded plans relate primarily to a
non-U.S. subsidiary, which is governed by local statutory requirements, and the
domestic supplemental retirement plans for certain officers and senior
management personnel.
Dollars in thousands 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS Funded Unfunded Funded Unfunded
------ -------- ------ --------
Fair Value of Plan Assets, Beginning of Year $ 154,149 $ - $ 133,329 $ -
Actual Return on Plan Assets 16,727 - 22,574 -
Acquisitions/Transfers 89,639 - - -
Employer Contributions 6,484 1,854 5,298 1,745
Employees' Contributions 1,491 - 901 -
Benefits Paid (5,781) (1,854) (4,722) (1,745)
Foreign Currency Rate Changes 10,637 - (3,231) -
- ------------------------------------------------------------------------------------------------------------------------------------
Fair Value, End of Year $ 273,346 $ - $ 154,149 $ -
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PROJECTED BENEFIT OBLIGATION
Benefit Obligation, Beginning of Year $ (190,565) $ (41,974) $ (174,941) $ (40,485)
Service Cost (11,077) (2,133) (9,112) (1,888)
Interest Cost (12,957) (2,451) (9,522) (2,068)
Employees' Contributions (1,491) - (901) -
Amendments and Other - (1,634) - (2,373)
Actuarial Gain (Loss) 3,039 (2,639) (6,116) 2,170
Benefits Paid 5,781 1,854 4,722 1,745
Acquisitions/Transfers (114,284) - - -
Foreign Currency Rate Changes (14,903) (2,064) 5,305 925
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit Obligation, End of Year $ (336,457) $ (51,041) $ (190,565) $ (41,974)
- -----------------------------------------------------------------------------------------------------------------------------------=
Funded Status (63,111) (51,041) (36,416) (41,974)
Unrecognized Prior Service Cost (Benefit) - - 3,351 1,348
Unrecognized Net Actuarial Loss - - 40,541 3,888
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost $ (63,111) $ (51,041) $ 7,476 $ (36,738)
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION
Before Addition of FAS 158:
Deferred Pension Asset $ 959 $ - $ 1,333 $ -
Accrued Pension Liability (59,437) (47,226) (22,316) (39,826)
Other Asset 2,420 2,613 2,900 1,795
Accumulated Other Comprehensive Income 32,601 1,784 25,559 1,293
- ------------------------------------------------------------------------------------------------------------------------------------
Net Amount Recognized $ (23,457) $ (42,829) $ 7,476 $ (36,738)
- ------------------------------------------------------------------------------------------------------------------------------------
After Adoption of FAS 158:
Deferred Pension Asset $ 257 $ - $ - $ -
Current Pension Liability - (2,139) - -
Noncurrent Pension Liability (63,369) (48,902) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Amount Recognized in Statement of Financial Position $ (63,112) $ (51,041) $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands 2007 2006
- ----------------------------------------------------------------------------------------------------------------------------
Funded Unfunded Funded Unfunded
------ -------- ------ --------
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER
COMPREHENSIVE INCOME CONSIST OF (before tax)
Net Actuarial Loss $ (36,846) $ (6,493) $ - $ -
Prior Service Cost (2,808) (1,719) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Accumulated Other Comprehensive Income (Loss) $ (39,654) $ (8,212) $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
(Decrease)/Increase in Accumulated Other Comprehensive
Income
- Due to Adoption of FAS 158 $ (7,053) $ (6,428) $ - $ -
- Due to Change in Minimum Pension Liability $ (7,042) $ (491) $ 13,625 $ 400
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS USED IN
DETERMINING ASSETS AND LIABILITIES
Discount Rate 5.7% 5.6% 5.8% 5.9%
Expected Return on Plan Assets 7.6% - 8.3% -
Rate of Compensation Increase 4.7% 3.8% 4.1% 4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Benefit Obligations $ (291,460) $ (44,982) $ (174,622) $ (34,430)
The net pension liability recorded for the acquisition of Blackwell was
approximately $24.6 million.
Basis for determining discount rate:
The discount rates for the United States and Canadian pension plans were based
on the derivation of a single-equivalent discount rate using a standard spot
rate curve and the timing of plan liabilities as of April 30, 2007. The spot
rate curve used is based upon a portfolio of Moody's-rated Aa3 (or higher)
corporate bonds. The discount rates for the other international plans were based
on similar published indices with durations comparable to that of each plan's
liabilities.
Basis for determining the expected asset return:
The expected long-term rates of return were estimated using market benchmarks
for equities, real estate, and bonds applied to each plan's target asset
allocation. Expected returns are estimated by asset class and represent the sum
of expected rates of return plus anticipated inflation. The expected long-term
rates are then compared to actual historic investment performance of the plan
assets as well as future expectations and evaluated through consultation with
investment advisors and actuaries.
The table below represents the asset mix of the investment portfolio of the
post-retirement benefit plan as of April 30:
Percentage of
Plan Assets
---------------------
Asset Category 2007 2006
- --------------------------------------------------------
Equities 61% 57%
Debt Securities and Cash 33% 35%
Real Estate 4% 6%
Other 2% 2%
- -------------------------------------------------------
Total 100% 100%
- -------------------------------------------------------
The investment guidelines for the defined benefit pension plans are established
based upon an evaluation of market conditions and tolerance for risk. The
investment objective is to ensure that funds are available to meet the plan's
benefit obligations when they are due.
The investment strategy is to prudently invest in plan assets in high quality
diversified securities to achieve our long-term expectation. The plans' risk
management practices provide guidance to the investment managers, including
guidelines for asset concentration, credit rating and liquidity. Asset
allocation favors a balanced portfolio, with a target allocation of
approximately 55% equity securities, 40% fixed income securities and cash, and
5% real estate. Due to volatility in the market, the target allocation is not
always desirable and asset allocations will fluctuate between acceptable ranges.
Expected employer contributions in fiscal year 2008 to the defined benefit
pension plans will be approximately $34.4 million, including $33.2 million of
minimum amounts required for the Company's international plans. The expected
contributions for fiscal year 2008 includes approximately $23 million to be paid
into the Blackwell pension plan in accordance with the terms of the acquisition
agreement. In accordance with FAS 158, this amount is reflected in long-term
pension liabilities. From time to time, the Company may elect to make voluntary
contributions to its defined benefit plans to improve their funded status.
Expected benefit payments from all plans are expected to approximate $10.1
million in fiscal year 2008, $11.4 million in fiscal year 2009, $10.3 million in
fiscal year 2010, $10.6 million in fiscal year 2011, $12.0 million in fiscal
year 2012, and $81.2 million for fiscal years 2013 through 2017.
The Company provides contributory life insurance and health care benefits,
subject to certain dollar limitations for substantially all of its retired U.S.
employees. The cost of such benefits is expensed over the years the employee
renders service and is not funded in advance. The accumulated post-retirement
benefit obligation recognized in the Statement of Financial Position as of April
30, 2007 and 2006 was $2.1 million and $1.2 million, respectively. Annual
expenses for these plans for all years were immaterial. The impact of adopting
FAS 158 on the post-retirement benefit obligation at April 30, 2007 was
approximately $0.6 million, after taxes.
The Company has defined contribution savings plans. The Company contribution is
based on employee contributions and the level of Company match. The expense for
these plans amounted to approximately $4.5 million, $4.1 million, and $2.7
million in 2007, 2006, and 2005, respectively.
Note 15 - Share-Based Compensation
All equity compensation plans have been approved by security holders. Under the
Key Employee Stock Plan ("the Plan"), qualified employees are eligible to
receive awards that may include stock options, performance-based stock awards,
and restricted stock awards. Under the Plan, a maximum number of 8,000,000
shares of Company Class A stock may be issued. As of April 30, 2007 there were
5,620,998 securities remaining available for future issuance under the Plan. The
Company issues treasury shares to fund stock options and performance-based and
restricted stock awards.
Stock Option Activity:
Under the terms of the Company's stock option plan the exercise price of stock
options granted under the plan may not be less than 100% of the fair market
value of the stock at the date of grant. Options are exercisable, over a maximum
period of 10 years from the date of grant, and generally vest 50% on the fourth
and fifth anniversary date after the award is granted. Under certain
circumstances relating to a change of control, as defined, the right to exercise
options outstanding could be accelerated.
The following table provides the estimated weighted average fair value, under
the Black-Scholes option-pricing model, for each option granted during the
periods and the significant weighted average assumptions used in their
determination. The expected life represents an estimate of the period of time
stock options are outstanding based on the historical exercise behavior of the
employees. The risk-free interest rate is based on the corresponding U.S.
Treasury yield curve in effect at the time of the grant. Similarly, the
volatility is estimated based on the expected volatility over the estimated
life, while the dividend yield is based on expected dividend payments to be made
by the Company.
For the Twelve Months
Ending April 30,
------------------------------------------------------
2007 2006 2005
-------------- ---------------- --------------
Expected Life of Options (years) 7.8 8.0 8.1
Risk-Free Interest Rate 5.2% 3.9% 4.5%
Expected Volatility 29.1% 27.1% 26.2%
Expected Dividend Yield 1.2% 0.9% 0.9%
Per Share Fair Value of Options Granted $12.65 $13.61 $11.00
A summary of the activity and status of the Company's stock option plans was as
follows:
2007 2006 2005
--------------------------------------------------- ----------------------- ------------------------
Weighted
Average
Weighted Remaining Average Weighted Weighted
Average Contractual Intrinsic Average Average
Stock Options Options Exercise Term Value Options Exercise Options Exercise
(in thousands) Price (in years) (in millions) (in thousands) Price (in thousands) Price
- ----------------------------------------------------------------------------------- ----------------------- ------------------------
Outstanding at Beginning of Year 6,084 $25.95 5,563 $22.77 5,048 $20.12
Granted 640 $33.05 1,014 $38.55 993 $31.84
Exercised (462) $16.30 (449) $14.70 (425) $12.12
Expired or Forfeited (46) $30.52 (44) $28.14 (53) $25.29
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year 6,216 $27.37 5.6 $63.8 6,084 $25.95 5,563 $22.77
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable at End of Year 2,801 $21.20 3.4 $45.5 2,460 $19.09 2,246 $16.80
Vested and Expected to Vest 6,118 $27.34 5.6 $62.9
in the Future at April 30, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
The intrinsic value is the difference between the Company's common stock price
and the option exercise price. Total intrinsic value of options exercised during
the twelve months ended April 30, 2007, 2006 and 2005 were $10.0 million, $11.2
million and $8.8 million, respectively. The Aggregate Intrinsic Value in the
table above represents the value to option holders on all options outstanding as
of April 30, 2007.
As of April 30, 2007, there was $19.2 million of unrecognized share-based
compensation expense related to stock options, which is expected to be
recognized over a period up to 5 years, or 2.6 years on a weighted average
basis.
The following table summarizes information about stock options outstanding and
exercisable at April 30, 2007:
Options Outstanding Options Exercisable
-------------------------------------------------------- ---------------------------------
Number of Weighted Weighted Number of Weighted
Range of Options Average Average Options Average
Exercise Prices (in thousands) Remaining Term Exercise Price (in thousands) Exercise Price
- ------------------------------------- --------------------------------- ---------------- ----------------
$ 8.63 to $ 8.63 8 0.1 years $ 8.63 8 $ 8.63
$13.75 to $14.59 675 1.1 years $13.93 675 $13.93
$17.25 to $20.54 82 4.1 years $19.44 82 $19.44
$20.56 to $23.40 759 3.4 years $22.28 759 $22.28
$23.56 to $25.32 2,105 5.1 years $24.83 1,276 $24.56
$31.89 to $38.78 2,587 8.0 years $34.74 1 $35.70
- ----------------------------------------------------------------------- ---------------- ----------------
Total 6,216 5.6 years $27.37 2,801 $21.20
- ----------------------------------------------------------------------- ---------------- ----------------
Performance-Based and Other Restricted Stock Activity:
Under the terms of the Company's long-term incentive plans, upon the achievement
of certain three-year financial performance-based targets, awards are payable in
restricted shares of the Company's Class A common stock. During each three-year
period the Company adjusts compensation expense based upon its best estimate of
expected performance. The restricted shares vest 50% on the first and second
anniversary date after the award is earned.
The Company may also grant restricted shares of the Company's Class A Common
Stock to key employees in connection with their employment. The restricted
shares generally vest 50% at the end of the fourth and fifth years following the
date of the grant.
Under certain circumstances relating to a change of control or termination, as
defined, the restrictions would lapse and shares would vest earlier. Activity
for restricted stock awards during the fiscal years ended April 30, 2007, 2006
and 2005 was as follows (shares in thousands):
---------------------------------------- ----------------- ----------------
2007 2006 2005
---------------------------------------- ----------------- ----------------
Restricted Weighted Average Restricted Restricted
Shares Grant Date Value Shares Shares
----------------- ---------------------- ----------------- ----------------
Nonvested Shares at 609 $30.47 524 447
Beginning of Year
Granted 372 $32.75 213 197
Vested (161) $25.12 (124) (120)
Forfeited (6) $31.93 (4) -
---------------------------------------- ---------------------------------
Nonvested Shares at 814 $32.56 609 524
End of Year
======================================== =================================
As of April 30, 2007, there was $11.8 million of unrecognized share-based
compensation cost related to restricted stock awards, which is expected to be
recognized over a period up to 5 years, or 2.8 years on a weighted average
basis. Compensation expense for restricted stock awards is computed using the
closing market price of the Company's Class A Common Stock at the date of grant.
Total grant date value of shares vested during the fiscal years ended April 30,
2007, 2006 and 2005 was $4.1 million, $3.1 million and $2.8 million,
respectively.
Director Stock Awards:
Under the terms of the Company's Director Stock Plan (the "Director Plan"), each
non-employee director receives an annual award of Class A Common Stock equal in
value to 100% of the annual director fee, based on the stock price on the date
of grant. The granted shares may not be sold or transferred during the time the
non-employee director remains a director. There were 6,642, 7,608 and 4,498
shares awarded under the Director Plan for the fiscal years ending April 30,
2007, 2006 and 2005, respectively.
Note 16 - Capital Stock and Changes in Capital Accounts
Each share of the Company's Class B Common Stock is convertible into one share
of Class A Common Stock. The holders of Class A stock are entitled to elect 30%
of the entire Board of Directors and the holders of Class B stock are entitled
to elect the remainder. On all other matters, each share of Class A stock is
entitled to one tenth of one vote and each share of Class B stock is entitled to
one vote.
Under the Company's current stock repurchase program, up to four million shares
of its Class A Common Stock may be purchased from time to time in the open
market and through privately negotiated transactions. During fiscal year 2007,
the Company repurchased 205,700 shares at an average price of $35.38 per share.
As of April 30, 2007, the Company has authorization from its Board of Directors
to purchase up to approximately 1,905,030 additional shares.
Note 17 - Segment Information
The Company is a global publisher of print and electronic products, providing
content and services to customers worldwide. Core businesses include
professional and consumer books and subscription services; scientific, technical
and medical journals, encyclopedias, books, and online products and services;
and educational materials for advanced placement, undergraduate, and graduate
students, teachers and lifelong learners. The Company has publishing, marketing,
and distribution centers in the United States, Canada, Europe, Asia, and
Australia. The Company's reportable segments are based on the management
reporting structure, which is also used to evaluate performance. Other segments
include the Company's businesses in Asia, Australia and Canada. Segment
information is as follows (in millions):
2007
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Segments
----------------------------------------- --------- ----------- ------------ ---------------- ----------
(a) Eliminations
Higher Total European Blackwell Other & Corporate
P/T STM Education U.S. Segment Segment Segments Items Total
-------- -------- ----------- -------- --------- ----------- ----------- --------------- ----------
Revenue
External Customers $358.5 $212.7 $134.9 $706.1 $292.3 $105.8 $130.7 $ - $1,234.9
Inter-Segment Sales 41.0 9.3 27.6 77.9 23.8 - 2.2 (103.9) -
-------- ------- ----------- -------- --------- ----------- ----------- --------------- -----------
Total Revenue $399.5 $222.0 $162.5 $784.0 $316.1 $105.8 $132.9 $(103.9) $1,234.9
-------- ------- ----------- -------- --------- ----------- ----------- --------------- -----------
Direct Contribution
to Profit $107.6 $101.0 $41.2 $249.8 $104.8 $29.7 $27.2 $ - $411.5
-------- -------- ----------- -------- --------- ----------- ----------- --------------- -----------
Shared Services and
Admin. Costs (b) (250.2)
-----------
Operating Income 161.3
Interest Expense and
Other, Net (21.8)
-----------
Income Before Taxes
$139.5
===========
Total Assets $442.7 $77.7 $95.1 $615.5 $207.3 $1,485.0 $70.4 $152.9 $2,531.1
Expenditures for Other
Long-Lived Assets $38.2 $14.2 $11.3 $63.7 $22.0 $948.5 $5.6 $34.1 $1,073.9
Depreciation and
Amortization $21.6 $6.0 $13.6 $41.2 $18.2 $6.8 $4.8 $17.3 $88.3
- -----------------------------------------------------------------------------------------------------------------------------------
2006
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Segments
----------------------------------------- --------- ----------- ------------ ---------------- ----------
Eliminations
Higher Total European Blackwell Other & Corporate
P/T STM Education U.S. Segment Segment Segments Items Total
-------- -------- ----------- -------- --------- ----------- ----------- --------------- ----------
Revenue
External Customers $336.2 $195.8 $126.5 $658.5 $263.5 $ - $122.2 $ - $1,044.2
Inter-Segment Sales 44.0 10.2 29.7 83.9 29.0 - 1.8 (114.7) -
-------- ------- ----------- -------- --------- ----------- ----------- --------------- -----------
Total Revenue $380.2 $206.0 $156.2 $742.4 $292.5 $ - $124.0 $(114.7) $1,044.2
-------- ------- ----------- -------- --------- ----------- ----------- --------------- -----------
Direct Contribution
to Profit $107.0 $96.0 $40.1 $243.1 $93.4 $ - $26.7 $ - $363.2
-------- -------- ----------- -------- --------- ----------- ----------- --------------- -----------
Shared Services and
Admin. Costs (b) (210.5)
-----------
Operating Income 152.7
Interest Expense and
Other, Net (8.9)
-----------
Income Before Taxes
$143.8
===========
Total Assets $421.4 $77.3 $95.4 $594.1 $259.5 $ - $63.7 $108.7 $1,026.0
Expenditures for Other
Long-Lived Assets $35.8 $14.0 $10.0 $59.8 $17.7 $ - $6.1 $40.0 $123.6
Depreciation and
Amortization $19.2 $5.3 $15.1 $39.6 $16.5 $ - $3.9 $22.0 $82.0
- -----------------------------------------------------------------------------------------------------------------------------------
2005
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Segments
----------------------------------------- --------- ----------- ------------ ---------------- ----------
Eliminations
Higher Total European Blackwell Other & Corporate
P/T STM Education U.S. Segment Segment Segments Items Total
-------- -------- ----------- -------- --------- ----------- ----------- --------------- ----------
Revenue
External Customers $313.6 $182.4 $124.1 $620.1 $247.0 $ - $106.9 $ - $974.0
Inter-Segment Sales 36.7 8.1 26.8 71.6 21.9 - 1.7 (95.2) -
-------- ------- ----------- -------- --------- ----------- ----------- --------------- -----------
Total Revenue $350.3 $190.5 $150.9 $691.7 $268.9 $ - $108.6 $ (95.2) $974.0
-------- ------- ----------- -------- --------- ----------- ----------- --------------- -----------
Direct Contribution
to Profit $102.3 $88.9 $38.2 $229.4 $86.2 $ - $24.9 $ - $340.5
-------- -------- ----------- -------- --------- ----------- ----------- --------------- -----------
Shared Services and
Admin. Costs (b) (199.1)
-----------
Operating Income 141.4
Interest Expense and
Other, Net (5.7)
-----------
Income Before Taxes
$135.7
===========
Total Assets $395.4 $62.2 $101.6 $559.2 $269.8 $ - $46.4 $157.2 $1,032.6
Expenditures for Other
Long-Lived Assets $33.3 $12.1 $13.3 $58.7 $29.4 $ - $5.0 $20.7 $113.8
Depreciation and
Amortization $16.8 $5.1 $16.1 $38.0 $13.9 $ - $3.7 $22.8 $78.4
- ----------------------- ------------------------------------------------------------------------------------------------------------
(a) In fiscal year 2007, the Company added a new segment "Blackwell" which
includes the results of the Blackwell business acquired on February 2,
2007 (See Note 4).
(b) Shared Services and Administrative Costs (in thousands):
2007 2006 2005
- ---------------------------------------------------------------------------------------------------
Distribution $53,492 $50,260 $47,631
Information Technology 71,935 62,732 55,074
Finance 45,761 32,594 34,390
Other Administration 79,063 64,942 62,064
- -------------------------------------------------------------------------------- ------------------
Total $250,251 $210,528 $199,159
================================================================================ ==================
Intersegment sales are generally made at a fixed discount from list price.
Corporate assets primarily consist of cash and marketable securities, deferred
tax benefits, and certain property and equipment. Export sales from the United
States to unaffiliated customers amounted to approximately $88.0 million, $79.6
million, and $67.7 million in fiscal years 2007, 2006, and 2005, respectively.
The pretax income for consolidated operations outside the United States was
approximately $58.2 million, $51.4 million, and $45.5 million in 2007, 2006, and
2005, respectively.
Worldwide revenue for the Company's core businesses was as follows (in
thousands):
2007 2006 2005
- ---------------------------------------------------------------------------------------------------
Professional/Trade $483,845 $444,211 $411,432
Scientific, Technical, and Medical 535,946 396,783 372,122
Higher Education 215,145 203,191 190,494
- ---------------------------------------------------------------------------------------------------
Total $1,234,936 $1,044,185 $974,048
===================================================================================================
Revenue from external customers based on the location of the customer and
long-lived assets by geographic area was as follows (in thousands):
Revenue Long-Lived Assets
----------------------------------------------------- -------------------------------------------------
2007 2006 2005 2007 2006 2005
--------------- ---------------- ------------ --------------- ------------- --------------
United States $711,960 $615,222 $576,521 $491,488 $472,505 $450,159
United Kingdom 94,556 72,543 73,428 1,456,956 69,978 81,041
Germany 66,333 61,776 69,964 142,477 137,921 143,349
Australia 51,068 44,660 38,025 10,055 8,836 9,640
Canada 51,280 46,612 37,994 4,522 4,935 3,543
Other Countries 259,739 203,372 178,116 3,612 1,717 1,634
--------------- ---------------- --------------- --------------- ------------- --------------
Total $1,234,936 $1,044,185 $974,048 $2,109,110 $695,892 $689,366
=============== ================ =============== =============== ============= ==============
Schedule II
-----------
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 30, 2007, 2006, AND 2005
(Dollars in thousands)
Additions/(Deductions)
-----------------------------
Balance at Charged to Deductions Balance at
Beginning Cost & From From End of
Description of Period Expenses Acquisitions Reserves Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended April 30, 2007
Allowance for Sales Returns (1) $55,805 $102,293 $2,069 $104,019 $56,148
Allowance for Doubtful Accounts $6,615 $6,421 $1,577 $3,407(2) $11,206
Allowance for Inventory Obsolescence $30,716 $20,555 $5,843 $24,870 $32,244
Year Ended April 30, 2006
Allowance for Sales Returns (1) $56,661 $106,779 $1,750 $109,385 $55,805
Allowance for Doubtful Accounts $7,280 $1,698 $241 $2,604(2) $6,615
Allowance for Inventory Obsolescence $24,169 $21,739 $1,700 $16,892 $30,716
Year Ended April 30, 2005
Allowance for Sales Returns (1) $63,752 $101,030 $ - $108,121 $56,661
Allowance for Doubtful Accounts $11,378 $1,861 $ - $5,959(2) $7,280
Allowance for Inventory Obsolescence $25,915 $20,342 $341 $22,429 $24,169
(1) Allowance for sales returns represents anticipated returns net of
inventory and royalty costs. The provision is reported as a reduction
of gross sales to arrive at revenue and the reserve balance is
reported as a deduction of accounts receivable.
(2) Accounts written off, less recoveries.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
---------------------------------------------
None
Item 9A. Controls and Procedures
-----------------------
Disclosure Controls and Procedures: As of the end of the period
covered by this report, an evaluation was performed under the
supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures as such term is defined in Rule
13a-15(e) of the Exchange Act. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective in
alerting them on a timely basis to information required to be included
in our submissions and filings with the SEC.
Management's Report on Internal Control over Financial Reporting: Our
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in
Rule 13a-15(f) of the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based
upon the framework in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, our management concluded that
our internal control over financial reporting is effective as of April
30, 2007.
We acquired Blackwell on February 2, 2007 and we excluded from our
assessment of the effectiveness of our internal control over financial
reporting as of April 30, 2007, Blackwell's internal control over
financial reporting associated with total assets of $1,485.0 million
and total revenue of $105.8 million included in our consolidated
financial statements as of and for the fiscal year ended April 30,
2007.
KPMG LLP, an independent registered public accounting firm, has
audited the consolidated financial statements included in this Annual
Report on Form 10-K and, as part of their audit, has issued their
report, included herein, (1) on our management's assessment of the
effectiveness of our internal controls over financial reporting and
(2) on the effectiveness of our internal control over financial
reporting.
Changes in Internal Control over Financial Reporting: There were no
changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting during our fourth fiscal
quarter of 2007.
Item 9B. Other Information
-----------------
Information on the Audit Committee Charter is contained in our Proxy
Statement for our 2007 Annual Meeting of Shareholders under the
caption "Certain Information Concerning the Board" and is incorporated
herein by reference.
Information with respect to the Company's corporate governance
principles is contained in our Proxy Statement for our 2007 Annual
Meeting of Shareholders under the caption "Corporate Governance
Principles" and is incorporated herein by reference.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The name, age and background of each of our directors nominated for
election are contained under the caption "Election of Directors" in
our Proxy Statement for our 2007 Annual Meeting of Shareholders and
are incorporated herein by reference.
Information on the beneficial ownership reporting for our directors
and executive officers is contained under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in our Proxy Statement for
our 2007 Annual Meeting of Shareholders and is incorporated herein by
reference.
Information on our audit committee financial experts is contained in
our Proxy Statement for our 2007 Annual Meeting of Shareholders under
the caption "Report of the Audit Committee" and is incorporated herein
by reference.
Executive Officers
------------------
Set forth below as of April 30, 2007 are the names and ages of all
executive officers of the Company, the period during which they have
been officers, and the offices presently held by each of them.
Officer
Name and Age Since Present Office
---------------------------- ---------------- -----------------------------------------------------------------------------
Peter Booth Wiley 2002 Chairman of the Board since September 2002 and a Director since
64 1984.
William J. Pesce 1989 President and Chief Executive Officer and a Director since May 1998.
56
Ellis E. Cousens 2001 Executive Vice President and Chief Financial and Operations Officer
55 since March 2001.
Stephen A. Kippur 1986 Executive Vice President; and President, Professional and Trade
60 Publishing, since July 1998.
William Arlington 1990 Senior Vice President, Human Resources, since June 1996.
58
Timothy B. King 1996 Senior Vice President, Planning and Development, since 1996.
67
Bonnie E. Lieberman 1990 Senior Vice President, Higher Education, since 1996.
59
Gary M. Rinck 2004 Senior Vice President, General Counsel, since March 2004 (previously
55 Group General Counsel of Pearson PLC, from 2000, Managing Partner
of the London office of Morrison & Foerster from 1995).
Stephen M. Smith 1995 Chief Operating Officer, Wiley Europe, since May 2006 (previously
52 Senior Vice President, International Development and Director of
Professional and Trade Publishing, since 1995).
Eric A. Swanson 1989 Senior Vice President, Wiley-Blackwell since January 2007 (previously
59 Senior Vice President, Scientific Technical and Medical, since 1996).
Deborah E. Wiley 1982 Senior Vice President, Corporate Communications, since June 1996.
61
Vinnie Marzano 2007 Vice President, Treasurer, since September 2006 (previously Vice
44 President, Treasurer of Scholastic Corporation from 2000).
Edward J. Melando 2002 Vice President, Corporate Controller and Chief Accounting Officer,
51 since April 2002.
Josephine Bacchi 1992 Vice President and Corporate Secretary, since January 2007
60 (previously Corporate Secretary since 1992).
Each of the other officers listed above will serve until the next
organizational meeting of the Board of Directors of the Company and
until each of the respective successors is duly elected and qualified.
Deborah E. Wiley is the sister of Peter Booth Wiley. There is no other
family relationship among any of the aforementioned individuals.
Item 11. Executive Compensation
----------------------
Information on compensation of our directors and executive officers is
contained in our Proxy Statement for our 2007 Annual Meeting of
Shareholders under the captions "Directors' Compensation" and
"Executive Compensation," respectively, and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
--------------------------------------------------------------
Information required by this item is contained in the Company's Proxy
Statement for our 2007 Annual Meeting of Shareholders under the
caption "Beneficial Ownership of Directors and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
Item 14. Principal Accountant Fees and Services
--------------------------------------
Information required by this item is contained in the Company's Proxy
Statement for our 2007 Annual Meeting of Shareholders under the
caption "Report of the Audit Committee" and is incorporated herein by
reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) Financial Statements and Schedules
Financial Statements and Schedules are listed in the attached index on
page 10 and are filed as part of this Report.
(b) Reports on Form 8-K
Announcement of completion of the acquisition of Blackwell Publishing
(Holdings) Limited and the related new credit agreement with Bank of
America issued on Form 8-K dated as of February 8, 2007.
Earnings release on the third quarter fiscal 2007 results issued on
Form 8-K dated March 8, 2007, which included certain condensed
financial statements of the Company.
Earnings release on the fiscal year 2007 results issued on Form 8-K
dated June 21, 2007, which included certain condensed financial
statements of the Company.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of August 12, 2001, among the
Company, HMI Acquisition Corp. and Hungry Minds, Inc. (incorporated by
reference to the Company's Report on Form 8-K dated as of August 12,
2001).
2.2 Scheme of Arrangement dated as of November 21, 2006, among the
Company, Wiley Europe Investment Holdings Limited and Blackwell
Publishing (Holdings) Limited (incorporated by reference to the
Company's Report on Form 8-K dated as of November 21, 2006).
3.1 Restated Certificate of Incorporation (incorporated by reference to
the Company's Report on Form 10-K for the year ended April 30, 1992).
3.2 Certificate of Amendment of the Certificate of Incorporation dated
October 13, 1995 (incorporated by reference to the Company's Report on
Form 10-K for the year ended April 30, 1997).
3.3 Certificate of Amendment of the Certificate of Incorporation dated as
of September 1998 (incorporated by reference to the Company's Report
on Form 10-Q for the quarterly period ended October 31, 1998).
3.4 Certificate of Amendment of the Certificate of Incorporation dated as
of September 1999 (incorporated by reference to the Company's Report
on Form 10-Q for the quarterly period ended October 31, 1999).
3.5 By-Laws as Amended and Restated dated as of September 1998
(incorporated by reference to the Company's Report on Form 10-Q for
the quarterly period ended October 31, 1998).
10.1 $300,000,000 Credit Agreement dated November 9, 2005. Form 10Q for the
quarterly period ended October 31, 2005 (incorporated by reference to
the Company's Report on Form 10-Q for the quarterly period ended
October 31, 2005).
10.2 Credit Agreement dated as of February 2, 2007, among the Company and
Bank of America, N.A., as Administrative Agent and Swing Line Lender
and the Other Lenders Party Hereto (incorporated by reference to the
Company's Report on Form 8-K dated as of February 8, 2007).
10.3 Agreement of the Lease dated as of June 7, 2006 between One Wiley
Drive, LLC, an independent third party, as landlord and John Wiley and
Sons, Inc., as Tenant (incorporated by reference to the Company's
Report on Form 10-K for the year ended April 30, 2006).
10.4 Agreement of Lease dated as of August 4, 2000, between, Block A South
Waterfront Development L.L.C., as Landlord, and the Company, as Tenant
(incorporated by reference to the Company's Report on Form 10-Q for
the quarterly period ended July 31, 2000).
10.5 Summary of Lease Agreement dated as of March 4, 2005, between, Investa
Properties Limited L.L.C. as Landlord, and the Company, as Tenant
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 2005).
10.6 Director Stock Plan (incorporated by reference to the Company's
Definitive Proxy Statement date August, 2004).
10.7 Executive Annual Incentive Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 5, 2004).
10.8 2004 Key Employee Stock Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 5, 2004).
10.9 Senior executive employment Agreement to Arbitrate dated as of April
29, 2003 (incorporated by reference to the Company's Report on Form
10-K for the year ended April 30, 2003).
10.10 Senior executive Non-competition and Non-disclosure Agreement dated as
of April 29, 2003 (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2003).
10.11 1990 Director Stock Plan as Amended and Restated as of June 22, 2001
(incorporated by reference to the Company's Definitive Proxy Statement
dated August 8, 2001).
10.12 1989 Supplemental Executive Retirement Plan (incorporated by reference
to the Company's Report on Form 10-K for the year ended April 30,
1989).
10.13 Form of the Fiscal Year 2008 Qualified Executive Long Term Incentive
Plan (incorporated by reference to the Company's Report on Form 10-K
for the year ended April 30, 2007).
10.14 Form of the Fiscal Year 2008 Qualified Executive Annual Incentive Plan
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 2007).
10.15 Form of the Fiscal Year 2008 Executive Annual Strategic Milestones
Incentive Plan (incorporated by reference to the Company's Report on
Form 10-K for the year ended April 30, 2007).
10.16 Form of the Fiscal Year 2007 Qualified Executive Long Term Incentive
Plan (incorporated by reference to the Company's Report on Form 10-K
for the year ended April 30, 2006).
10.17 Form of the Fiscal Year 2007 Qualified Executive Annual Incentive Plan
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 2006).
10.18 Form of the Fiscal Year 2007 Executive Annual Strategic Milestones
Incentive Plan (incorporated by reference to the Company's Report on
Form 10-K for the year ended April 30, 2006).
10.19 Form of the Fiscal Year 2006 Qualified Executive Long Term Incentive
Plan (incorporated by reference to the Company's first quarter fiscal
year 2006 report on Form 10-Q).
10.20 Form of the Fiscal Year 2006 Qualified Executive Annual Incentive Plan
(incorporated by reference to the Company's first quarter fiscal year
2006 report on Form 10-Q).
10.21 Form of the Fiscal Year 2006 Executive Annual Strategic Milestones
Incentive Plan (incorporated by reference to the Company's first
quarter fiscal year 2006 report on Form 10-Q).
10.22 Senior executive Employment Agreement dated as of March 1, 2003,
between William J. Pesce and the Company (incorporated by reference to
the Company's Report on Form 10-K for the year ended April 30, 2003).
10.23 Senior executive Employment Agreement dated as of March 1, 2003,
between Stephen A. Kippur and the Company (incorporated by reference
to the Company's Report on Form 10-K for the year ended April 30,
2003).
10.24 Senior executive Employment Agreement dated as of March 1, 2003,
between Ellis E. Cousens and the Company (incorporated by reference to
the Company's Report on Form 10-K for the year ended April 30, 2003).
10.25 Senior executive Employment Agreement letter dated as of March 1,
2003, between Timothy B. King and the Company (incorporated by
reference to the Company's Report on Form 10-K for the year ended
April 30, 2003).
10.27 Senior executive Employment Agreement letter dated as of March 15,
2004, between Gary M. Rinck and the Company (incorporated by reference
to the Company's Report on Form 10-K for the year ended April 30,
2004).
10.28 Deferred Compensation Plan for Directors' 2005 & After Compensation
(incorporated by reference to the report on Form 8-K, filed December
21, 2005).
21* List of Subsidiaries of the Company
23* Consent of KPMG LLP.
31.1* Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2* Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- --------------
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JOHN WILEY & SONS, INC.
---------------------------------------------------------
(Company)
By: /s/ William J. Pesce
---------------------------------------------------------
William J. Pesce
President and Chief Executive Officer
By: /s/ Ellis E. Cousens
---------------------------------------------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial and Operations Officer
By: /s/ Edward J. Melando
---------------------------------------------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: June 28, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons constituting directors of the
Company on June 28, 2007.
/s/ Warren J. Baker /s/ Eduardo R. Menasce
- ------------------------------------- -------------------------------------
Warren J. Baker Eduardo R. Menasce
/s/ Richard M. Hochhauser /s/ William J. Pesce
- ------------------------------------- -------------------------------------
Richard M. Hochhauser William J. Pesce
/s/ Kim Jones /s/ William B. Plummer
- ------------------------------------- -------------------------------------
Kim Jones William B. Plummer
/s/ Mathew S. Kissner /s/ Bradford Wiley II
- ------------------------------------- -------------------------------------
Mathew S. Kissner Bradford Wiley II
/s/ Raymond McDaniel, Jr. /s/ Peter Booth Wiley
- ------------------------------------- -------------------------------------
Raymond McDaniel, Jr. Peter Booth Wiley
Exhibit 10.13
JOHN WILEY & SONS, INC.
-----------------------
FY 2008 QUALIFIED EXECUTIVE LONG TERM INCENTIVE PLAN
----------------------------------------------------
PLAN DOCUMENT
-------------
CONFIDENTIAL
------------
MAY 1, 2007
-----------
CONTENTS
--------
Section Subject Page
- ------- ------- ----
I. Definitions 2
II. Plan Objectives 3
III. Eligibility 3
IV. Performance Targets and Measurement 3
V. Performance Evaluation 3
VI. Restricted Performance Shares Award Provisions 4
VII. Stock Options 5
VIII. Payouts 5
IX. Administration and Other Matters 5
I. DEFINITIONS
-----------
Following are definitions for words and phrases used in this document. Unless
the context clearly indicates otherwise, these words and phrases are considered
to be defined terms and appear in this document in italicized print:
Company
John Wiley & Sons, Inc.
business unit
The Company, a business or subsidiary of the Company, or a global unit of the
Company.
plan
This FY 2008 Qualified Executive Long Term Incentive Plan.
shareholder plan
The Company's 2004 Key Employee Stock Plan.
plan period
The three year period from May 1, 2007 to April 30, 2010, or a portion of this
period, at the discretion of the CC.
Compensation Committee (CC)
The committee of the Company's Board of Directors responsible for the review and
approval of executive compensation.
performance target
A participant's objective to achieve specific financial goals for the plan
period, as approved by the CC. A performance target comprises all of the
financial goals for the business criteria in a business unit.
business criteria
An indicator of financial performance, chosen from the business criteria listed
in Section 7(b)(ii)(B) of the shareholder plan. The following business criteria
are used in this plan:
earnings per share
Earnings per share, excluding unusual items not related to the period being
measured. Actual results shall be increased by one cent for VCH tax basis
step-up recovery.
financial goal
A targeted level of attainment of a given business criteria.
financial results
The published, audited financial results of the Company.
participant
A person selected to participate in the plan.
performance levels
threshold
The minimum acceptable level of achievement of a financial goal in order to
earn a payout, expressed as a percentage of target ( e.g., 95% of target.)
target
Achievement of the assigned financial goal-100%.
outstanding
Superior achievement of a financial goal, earning the maximum payout,
expressed as a percentage of target (e.g., 115% of target.)
target incentive
A targeted number of restricted performance shares that a participant is
eligible to receive if 100% of his/her/her applicable performance targets are
achieved and the participant remains employed by the Company through April 30,
2012, except as otherwise provided in Section VIII.
stock
Class A Common Stock of the Company.
restricted performance share
A share of stock issued pursuant to this plan and the shareholder plan that is
subject to forfeiture. In the shareholder plan, such stock is referred to as
"Performance-Based Stock."
restricted period
The period during which the restricted performance shares shall be subject to
forfeiture in whole or in part, as defined in the shareholder plan, in
accordance with the terms of the award.
plan-end adjusted restricted performance shares award
The number of restricted performance shares awarded to a participant at the end
of the plan cycle after adjustments, if any, are made, as set forth in Sections
V and VIII.
II. PLAN OBJECTIVES
---------------
The plan is intended to provide the officers and other key colleagues of the
Company and of its subsidiaries, affiliates and certain joint venture companies,
upon whose judgment, initiative and efforts the Company depends for its growth
and for the profitable conduct of its business, with additional incentive to
promote the success of the Company.
III. ELIGIBILITY
-----------
A participant is selected by the CEO and recommended for participation to the
CC, which has sole discretion for determining eligibility, from among those
colleagues in key management positions deemed able to make the most significant
contributions to the growth and profitability of the Company. The President and
CEO of the Company is a participant.
IV. PERFORMANCE TARGETS AND MEASUREMENT
-----------------------------------
The CEO recommends and the CC adopts, in its sole discretion, performance
targets and performance levels for each participant, not later than 90 days from
the commencement of the plan period. No performance target or performance level
may be modified after 90 days from the commencement of the plan period.
A. Performance targets, comprising one or more financial goals, are defined
for each business unit. Each financial goal is assigned a weight, such that
the sum of the weights of all financial goals for a business unit equals
100%.
B. Each participant is assigned performance targets for one or more business
units, based on the participant's position, responsibilities, and his/her
ability to affect the results of the assigned business unit. For each
participant, each business unit is assigned a weight, such that the sum of
the weights of all business units for a participant equals 100%.
Collectively, all business unit performance targets constitute the
participant's plan period objectives.
C. Each financial goal is assigned performance levels (threshold, target and
outstanding).
V. PERFORMANCE EVALUATION
----------------------
A. Financial Results
-----------------
1. At the end of the plan period, the financial results for each business
unit are compared with that unit's financial goals to determine the
payout for each participant.
2. In determining the attainment of financial goals, the impact of any of
the events (a) through (i) listed in Section 7(b)(ii)(B) of the
shareholder plan, if dilutive (causes a reduction in the financial
result) will be excluded from the financial results for any affected
business unit.
3. Award Determination
a. Achievement of threshold performance of at least one financial
goal of a performance target is necessary for a participant to
receive a payout for that performance target.
b. The unweighted payout factor for each financial goal is
determined as follows:
1. For performance below the threshold level, the payout
factor is zero.
2. For performance at the threshold level, the payout
factor is 25%.
3. For performance between the threshold and target
levels, the payout factor is between 25% and 100%,
determined on a pro-rata basis.
4. For performance at the target level, the payout factor
is 100%.
5. For performance between the target and outstanding
levels, the payout factor is between 100% and 200%,
determined on a pro-rata basis.
6. For performance at or above the outstanding level, the
payout factor is 200%.
c. A participant's plan-end adjusted restricted performance shares
award is determined as follows:
1. Each financial goal's unweighted payout factor
determined above times the weighting of that financial
goal equals the weighted payout factor for that
financial goal
2. The sum of the weighted payout factors for a business
unit's performance target equals the payout factor for
that performance target.
3. The participant's target incentive
times
the business unit weight
times
the performance target payout factor
equals
the participant's payout for that business unit
4. The sum of the payouts for all the business units
assigned to a participant equals the participant's
total plan-end adjusted restricted performance shares
award.
d. The CC may, in its sole discretion, reduce a participant's payout
to any level it deems appropriate.
VI. RESTRICTED PERFORMANCE SHARES AWARD PROVISIONS
----------------------------------------------
A. Restricted performance shares, equal to a participant's target incentive,
shall be determined at the beginning of the plan period. In addition to the
terms and conditions set forth in the shareholder plan, the restricted
period for the plan-end adjusted restricted performance shares award shall
be as follows: subject to continued employment except as otherwise set
forth in the shareholder plan, the lapse of restrictions on one-half of the
restricted performance shares awarded will occur on the first anniversary
of the plan period end date (April 30, 2011) at which time the participant
will receive a stock certificate in a number of shares equal to one-half of
the restricted performance shares awarded with the restrictive legend
deleted, and the lapse of restrictions on the remaining half will occur on
the second anniversary of the plan period end date (April 30, 2012) at
which time the participant will receive a new stock certificate in a number
of shares equal to the remaining half with the restrictive legend deleted.
B. The plan-end adjusted restricted performances share award will be compared
to the restricted performance shares targeted at the beginning of the plan
period, and the appropriate amount of restricted performance shares will be
awarded or forfeited, as required, to bring the restricted performance
shares award to the number of shares designated as the plan-end adjusted
restricted performance shares award.
VII. STOCK OPTIONS
-------------
The participant may be granted a stock option pursuant to the shareholder plan
at the beginning of the plan period, representing another incentive vehicle by
which the participant is able to share in the equity growth of the Company. The
terms and conditions of the award of the stock option are contained in the
shareholder plan and in the stock option award.
VIII. PAYOUTS
-------
A. Plan-end adjusted restricted performances share awards will be made
within 90 days after the end of the plan period.
B. In the event of a participant's death, disability, retirement or leave
of absence prior to the plan-end adjusted restricted performances
share award being earned, the award, if any, will be determined by the
CC.
C. A participant who resigns, or whose employment is terminated by the
Company, with or without cause before the award is earned, will not
receive an award. Exception to this provision shall be made with the
approval of the CC, in its sole discretion.
D. In the event of a participant's retirement, all plan-end adjusted
restricted performances share awards earned, but not yet vested, will
automatically vest, and will be paid out in cash based on the fair
market value on the next fiscal year end, if approved by the CC, in
its sole discretion. Any plan-end adjusted restricted performances
share award that would have been earned by the participant in the year
of retirement may be paid out in cash based on the fair market value
on the next fiscal year end, if approved by the CC, in its sole
discretion.
E. In the event of constructive discharge or without cause termination
following a Change of Control, as that term is defined in the
shareholder plan, all "target" restricted performance shares vest to
the participant, or at the CC's option, payment will be made of the
value of the "target" restricted performance shares based on the fair
market value on the effective date of the Change of Control.
F. A participant who is hired or promoted into an eligible position
during the plan period may receive a prorated plan-end adjusted
restricted performances share award as determined by the CC, in its
sole discretion.
IX. ADMINISTRATION AND OTHER MATTERS
--------------------------------
A. The plan will be administered by the CC, which shall have authority in
its sole discretion to interpret and administer this plan, including,
without limitation, all questions regarding eligibility and status of
any participant, and no participant shall have any right to receive a
payout or payment of any kind whatsoever, except as determined by the
CC hereunder.
B. The Company will have no obligation to reserve or otherwise fund in
advance any amount which may become payable under the plan.
C. This plan may not be modified or amended except with the approval of
the CC, in accordance with the provisions of the shareholder plan.
D. In the event of a conflict between the provisions of this plan and the
provisions of the shareholder plan, the provisions of the shareholder
plan shall apply.
E. No awards of any type under this plan shall be considered as
compensation for purposes of defining compensation for retirement,
savings or supplemental executive retirement plans, or any other
benefit.
Exhibit 10.14
JOHN WILEY & SONS, INC.
-----------------------
FY 2008 QUALIFIED EXECUTIVE ANNUAL INCENTIVE PLAN
PLAN DOCUMENT
-------------
CONFIDENTIAL
------------
MAY 1, 2007
-----------
CONTENTS
--------
Section Subject Page
- ------- ------- ----
I. Definitions 2
II. Plan Objectives 3
III. Eligibility 3
IV. Performance Targets and Measurement 3
V. Performance Evaluation 4
VI. Payouts 4
VII. Administration and Other Matters 5
I. DEFINITIONS
-----------
Following are definitions for words and phrases used in this document. Unless
the context clearly indicates otherwise, these words and phrases are considered
to be defined terms and appear in this document in italicized print:
Company
John Wiley & Sons, Inc.
business unit
The Company, a business or subsidiary of the Company, or a global unit of the
Company.
plan
This FY 2008 Qualified Executive Annual Incentive Plan.
shareholder plan
The Company's 2004 Executive Annual Incentive Plan.
plan period
The twelve-month period from May 1, 2007 to April 30, 2008, or a portion of this
period, at the discretion of the CC.
Compensation Committee (CC)
The committee of the Company's Board of Directors responsible for the review and
approval of executive compensation.
performance target
A participant's objective to achieve specific financial goals for assigned
business criteria in the plan period, as approved by the CC. A performance
target comprises all of the financial goals for the business criteria in a
business unit.
business criteria
An indicator of financial performance, chosen from the business criteria listed
in Section 4(b)(ii) of the shareholder plan. The following business criteria are
used in this plan:
revenue
(corporate) Gross annual revenue, net of provision for returns.
earnings per share
Earnings per share, excluding unusual items not related to the period being
measured. Actual results shall be increased by one cent for VCH tax basis
step-up recovery.
revenue
(business) Gross annual revenue, net of actual returns.
business EBITA
Operating income before amortization of intangibles.
GPC EBITA
business operating income before amortization of intangibles as adjusted
for profit earned by other businesses on intercompany transactions.
financial goal
A targeted level of attainment of a given business criteria.
financial results
The published, audited financial results of the Company and the business
financial results derived therefrom.
participant
A person selected to participate in the plan.
performance levels
threshold
The minimum acceptable level of achievement of a financial goal in order to
earn a payout, expressed as a percentage of target ( e.g., 95% of target.)
target
Achievement of the assigned financial goal-100%.
outstanding
Superior achievement of a financial goal, earning the maximum payout,
expressed as a percentage of target (e.g., 115% of target.)
base salary
A participant's base salary as of July 1, 2007, or the date of hire or promotion
into the plan, if later, adjusted for any amount of time the participant may not
be in the plan for reasons of hire, death, disability, retirement and/or
termination.
payout
Actual gross dollar amount paid to a participant under the plan, if any, for
achievement of assigned performance targets, as further discussed in this plan.
total annual incentive opportunity
The total target amount that a participant is eligible to receive from all
annual incentive plans, including this plan.
target incentive percent
The percent applied to the participant's total annual incentive opportunity to
determine the target incentive amount for this plan. Generally, for the plan
period 2008, the target incentive percent for this plan is 75%.
target incentive amount
The amount that a participant is eligible to receive if he/she achieves 100% of
his/her performance targets for a business unit. The sum of the target incentive
amounts for all business units assigned to a participant is the total target
incentive amount.
II. PLAN OBJECTIVES
---------------
The plan is intended to provide the officers and other key colleagues of the
Company and of its subsidiaries, affiliates and certain joint venture companies,
upon whose judgement, initiative and efforts the Company depends for its growth
and for the profitable conduct of its business, with additional incentive to
promote the success of the Company.
III. ELIGIBILITY
-----------
A participant is selected by the CEO and recommended for participation to the
CC, which has sole discretion for determining eligibility, from among those
colleagues in key management positions deemed able to make the most significant
contributions to the growth and profitability of the Company. The President and
CEO of the Company is a participant.
IV. PERFORMANCE TARGETS AND MEASUREMENT
-----------------------------------
The CEO recommends and the CC adopts, in its sole discretion, performance
targets and performance levels for each participant, not later than 90 days from
the commencement of the plan period. No performance target or performance level
may be modified after 90 days from the commencement of the plan period.
A. Performance targets, comprising one or more financial goals, are
defined for each business unit. Each financial goal is assigned a
weight, such that the sum of the weights of all financial goals for a
business unit equals 100%.
B. Each participant is assigned performance targets for one or more
business units , based on the participant's position,
responsibilities, and his/her ability to affect the results of the
assigned business unit. For each participant, each business unit is
assigned a weight, such that the sum of the weights of all business
units for a participant equals 100%. Collectively, all business unit
performance targets constitute the participant's plan period
objectives.
C. Each financial goal is assigned performance levels (threshold, target
and outstanding).
V. PERFORMANCE EVALUATION
----------------------
A. Financial Results
-----------------
1. At the end of the plan period, the financial results for each business
unit are compared with that unit's financial goals to determine the
payout for each participant.
2. In determining the attainment of financial goals,
a. the impact of foreign exchange gains or losses will be excluded
from revenue and business EBITA criteria.
b. the impact of any of the events (1) through (9) listed in Section
4(b)(ii) of the shareholder plan, if dilutive (causes a reduction
in the financial result), will be excluded from the financial
results of any affected business unit.
3. Award Determination
a. Achievement of threshold performance of at least one financial
goal of a performance target is necessary for a participant to
receive a payout for that performance target.
b. The unweighted payout factor for each financial goal is
determined as follows:
1. For performance below the threshold level, the payout
factor is zero.
2. For performance at the threshold level, the payout
factor is 25%.
3. For performance between the threshold and target
levels, the payout factor is between 25% and 100%,
determined on a pro-rata basis.
4. For performance at the target level, the payout factor
is 100%.
5. For performance between the target and outstanding
levels, the payout factor is between 100% and 200%,
determined on a pro-rata basis.
6. For performance at or above the outstanding level, the
payout factor is 200%.
c. A participant's payout is determined as follows:
1. Each financial goal's unweighted payout factor
determined above times the weighting of that financial
goal equals the weighted payout factor for that
financial goal.
2. The sum of the weighted payout factors for a business
unit's performance target equals the payout factor for
that performance target.
3. The participant's total annual incentive opportunity
times
the participant's target incentive percent
times
the business unit weight
times
the performance target payout factor
equals
the participant's payout for that business unit
4. The sum of the payouts for all the business units
assigned to a participant equals the participant's
total payout.
d. The CC may, in its sole discretion, reduce a participant's payout
to any level it deems appropriate.
VI. PAYOUTS
-------
A. Payouts will be made within 90 days after the end of the plan period.
B. In the event of a participant's death, disability, retirement or leave of
absence prior to payout from the plan, the payout, if any, will be
determined by the CC.
C. A participant who resigns, or whose employment is terminated by the
Company, with or without cause, before payout from the plan is distributed,
will not receive a payout. Exception to this provision shall be made with
the approval of the CC, in its sole discretion.
D. A participant who is hired or promoted into an eligible position during the
plan period may receive a prorated payout as determined by the CC, in its
sole discretion.
VII. ADMINISTRATION AND OTHER MATTERS
--------------------------------
A. The plan will be administered by the CC, which shall have authority in its
sole discretion to interpret and administer this plan, including, without
limitation, all questions regarding eligibility and status of any
participant, and no participant shall have any right to receive a payout or
payment of any kind whatsoever, except as determined by the CC hereunder.
B. The Company will have no obligation to reserve or otherwise fund in advance
any amount which may become payable under the plan.
C. This plan may not be modified or amended except with the approval of the
CC, in accordance with the provisions of the shareholder plan.
D. In the event of a conflict between the provisions of this plan and the
provisions of the shareholder plan, the provisions of the shareholder plan
shall apply.
Exhibit 10.15
JOHN WILEY & SONS, INC.
-----------------------
FY 2008 EXECUTIVE ANNUAL STRATEGIC MILESTONES INCENTIVE PLAN
------------------------------------------------------------
ADMINISTRATIVE DOCUMENT
-----------------------
CONFIDENTIAL
------------
MAY 1, 2007
-----------
CONTENTS
--------
Section Subject Page
- ------- ------- ----
I. Definitions 2
II. Plan Objectives 3
III. Eligibility 3
IV. Performance Objectives and Measurement 3
V. Performance Evaluation 3
VI. Payouts 4
VII. Administration and Other Matters 5
I. DEFINITIONS
-----------
Following are definitions for words and phrases used in this document. Unless
the context clearly indicates otherwise, these words and phrases are considered
to be defined terms and appear in this document in italicized print:
Company
John Wiley & Sons, Inc.
plan
The Company's Fiscal Year 2008 Executive Annual Strategic Milestones Incentive
Plan described in this document and any written amendments to this document.
plan year
The twelve month period from May 1, 2007 to April 30, 2008, or a portion of this
period, at the discretion of the CC.
Compensation Committee (CC)
The committee of the Company's Board of Directors responsible for the review and
approval of executive compensation.
strategic milestone
A participant's objective to achieve specific results for FY 2008, including
interim revised strategic milestones, if any, as approved and communicated in
writing, as described in Sections IV and V below. Strategic milestones are
leading indicators of performance.
participant
A person selected to participate in the plan.
base salary
The participant's base salary as of July 1, 2007, or the date of hire or
promotion into the plan, if later, adjusted for any increases or decreases
during FY 2008, on a prorated basis, and adjusted for any amount of time the
participant may not be in the plan for reasons of hire, death, disability,
retirement and/or termination.
payout
Actual gross dollar amount paid to a participant under the plan, if any, for
achievement of strategic milestones, as further discussed in this plan.
total annual incentive opportunity
The total target amount a participant is eligible to receive from all annual
incentive plans, including this plan.
target incentive percent
The percent applied to the participant's total annual incentive opportunity to
determine the target incentive amount for this plan. Generally, for the plan
year 2008, the target incentive percent for this plan is 25%.
target incentive amount
The amount, if any, that a participant is eligible to receive if he/she achieves
100% of his/her strategic
milestones.
summary evaluation levels
threshold
The minimum acceptable level of achievement of strategic milestones. If
threshold performance is achieved against all strategic milestones, a
participant may earn 25% of the target incentive amount for which he/she is
eligible.
target
Achievement in aggregate of target strategic milestones. Each individual
strategic milestone is set at a level that is both challenging and
achievable. If target performance is achieved against all strategic
milestones, a participant may earn 100% of the target incentive amount for
which he/she is eligible.
outstanding
Superior achievement of strategic milestones, both in quality and scope,
with limited time and resources. If outstanding performance is achieved
against strategic milestones, the maximum amount a participant may earn is
200% of the target incentive amount for which he/she is eligible.
payout factor
Percentage of strategic milestones deemed achieved, applied to the target
incenive amount, used to determine the payout for which a participant is
eligible.
II. PLAN OBJECTIVES
---------------
The purpose of the FY 2008 Executive Annual Strategic Milestones Incentive Plan
is to enable the Company to reinforce and sustain a culture devoted to excellent
performance, reward significant contributions to the success of Wiley, and
attract and retain highly qualified executives.
III. ELIGIBILITY
-----------
A participant is selected by the President and CEO and recommended for
participation to the CC, which has sole discretion for determining eligibility,
from among those colleagues in key management positions deemed able to make the
most significant contributions to the growth and profitability of the Company.
The President and CEO of the Company is a participant.
IV. PERFORMANCE OBJECTIVES AND MEASUREMENT
--------------------------------------
A. Strategic milestones are non-financial individual objectives over which the
participant has a large measure of control, which lead to, or are expected
to lead to, improved performance for the Company in the future. Strategic
milestones are determined near the beginning of the plan year by the
participant, and approved by CEO or the participant's manager, if the CEO
is not the participant's manager.
B. The strategic milestones for the President and CEO are reviewed and
approved by the CC.
C. The strategic milestones for the President and CEO should be appropriately
reflected in those of all other colleagues at all levels. Each participant
collaborates with his/her manager in setting strategic milestones. The
strategic milestones may be revised during the plan year, as appropriate.
D. The determination of strategic milestones includes defining a target level
of performance and the measure of such, and may include defining threshold
and outstanding levels of performance and the measures of such.
V. PERFORMANCE EVALUATION
----------------------
A. Achievement of a participant's strategic milestones will be determined at
the end of the plan year by comparing results achieved to previously set
objectives.
B. Each participant's manager will recommend a summary evaluation level and a
payout factor for achievement of all strategic milestones, by comparing
results achieved to the previously set objectives. In determining the
payout factor, the overall performance on all strategic milestones will be
considered. The President and CEO will recommend to the CC for approval the
payout factors for all other participants. The CC will approve the payout
factor for the President and CEO.
Summary evaluation levels and related payout factors are as follows:
Summary Evaluation Payout factor range
< Threshold 0
Threshold 25% - <35%
> Threshold =>35% - <50%
< Target =>50% - <90%
Target =>90% - <=110%
> Target > 110% - <150%
< Outstanding =>150% - <175%
Outstanding =>175% - 200%
C. Award Determination
-------------------
STRATEGIC MILESTONES PAYOUT AMOUNT
----------------------------------
total annual incentive opportunity X target incentive percent X payout factor
= Strategic Milestones Payout Eligibility
1. Notwithstanding anything to the contrary, the maximum payout, if any,
a participant may receive is 200% of the target incentive amount.
2. The foregoing strategic milestones payout eligibility calculation is
intended to set forth general guidelines on how awards are to be
determined. The purpose of this plan is to motivate the participant to
perform in an outstanding manner. The President and CEO has discretion
under this plan to take into consideration the contribution of the
participant, the participant's management of his/her organizational
unit and other relevant factors, positive or negative, which impact
the Company's, the participant's organizational unit(s), and the
participant's performance overall in determining whether to recommend
granting or denying an award, and the amount of the award, if any. If
the participant is the President and CEO, such discretion is exercised
by the CC.
VI. PAYOUTS
-------
A. Payouts will be made within 90 days after the end of the plan year.
B. In the event of a participant's death, disability, retirement or leave of
absence prior to payout from the plan, the payout, if any, will be
recommended by the President and CEO to the CC which shall have sole
authority for approval of the payout.
C. A participant who resigns, or whose employment is terminated by the
Company, with or without cause, before payout from the plan is distributed,
will not receive a payout. Exception to this provision shall be made with
the approval of the CC, in its sole discretion.
D. A participant who transfers between businesses of the company, will have
his/her payout prorated to the nearest fiscal quarter for the time spent in
each business, based on the achievement of strategic milestones established
for the position in each business, and based upon a judgment of the
participant's contribution to the achievement of goals in each position,
including interim revisions, if appropriate.
E. A participant who is appointed to a position with a different target
incentive percent will have his/her payout prorated to the nearest fiscal
quarter for the time spent in each position, based on the achievement of
strategic milestones established for each position.
F. A participant who is hired or promoted into an eligible position during the
plan year may receive a prorated payout as determined by the CEO, in
his/her sole discretion, subject to the approval of the CC.
VII. ADMINISTRATION AND OTHER MATTERS
--------------------------------
A. The plan is effective for the plan year. It will terminate, subject to
payout, if any, in accordance with and subject to the provisions of this
plan.
B. This plan will be administered by the President and CEO, who will have
authority to interpret and administer this plan, including, without
limitation, all questions regarding eligibility and status of the
participant, subject to the approval of the CC.
C. This plan may be withdrawn, amended or modified at any time, for any
reason, in writing, by the Company.
D. The determination of an award and payout under this plan, if any, is
subject to the approval of the President and CEO and the CC. This plan does
not confer upon any participant the right to receive any payout, or payment
of any kind whatsoever.
E. No participant shall have any vested rights under this plan. This plan does
not constitute a contract.
F. All deductions and other withholdings required by law shall be made to the
participant's payout, if any.
Exhibit 21
SUBSIDIARIES OF JOHN WILEY & SONS, INC.(1)
Jurisdiction
In Which
Incorporated
------------
John Wiley & Sons International Rights, Inc. Delaware
JWS HQ, LLC New Jersey
JWS DCM, LLC New Jersey
Wiley-Liss, Inc. Delaware
Wiley Publishing Services, Inc. Delaware
Wiley Periodicals, Inc. Delaware
Wiley Subscription Services, Inc. Delaware
Blackwell Publishing, Inc. Delaware
Iowa State University Press Missouri
John Wiley & Sons (Asia) Pte. Ltd. Singapore
John Wiley & Sons Australia, Ltd. Australia
John Wiley & Sons Canada Limited Canada
John Wiley & Sons (HK) Limited Hong Kong
Wiley HMI Holdings, Inc. Delaware
Wiley Europe Investment Holdings, Ltd. United Kingdom
Wiley U.K. (Unlimited Co.) United Kingdom
Wiley Europe Ltd. United Kingdom
John Wiley & Sons, Ltd. United Kingdom
Wiley Heyden Ltd. United Kingdom
Wiley Distribution Services Ltd. United Kingdom
Blackwell Publishing (Holdings) Ltd. United Kingdom
Blackwell Publishing Ltd. United Kingdom
Blackwell Publishing Singapore Singapore
Blackwell Science Ltd. United Kingdom
Blackwell Science (Overseas Holdings) United Kingdom
Munksgaard Als Denmark
Blackwell - Verlag GmbH Germany
Blackwell Pub. Asia Put. Ltd. Australia
Blackwell Science KK Japan
Blackwell Science (HK) Ltd. China
HMI Investment , Inc. Delaware
Wiley Publishing Inc. Delaware
Wiley India Private Ltd. India
Wiley Publishing Australia Pty Ltd. Australia
John Wiley & Sons GmbH Germany
Wiley-VCH Verlag GmbH & Co. KGaA Germany
GIT Verlag GmbH & Co. KG Germany
(1) The names of other subsidiaries that would not constitute a significant
subsidiary in the aggregate have been omitted.
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
John Wiley & Sons, Inc.:
We consent to the incorporation by reference in the Registration Statement Nos.
333-123359, 333-93591, 33-60268 and 33-62605 of John Wiley & Sons, Inc. (the
"Company") of our reports dated June 28, 2007, with respect to the consolidated
statements of financial position of John Wiley & Sons, Inc. as of April 30, 2007
and 2006, and the related consolidated statements of income, shareholders'
equity and comprehensive income, and cash flows, for each of the years in the
three-year period ended April 30, 2007, and the related financial statement
schedule, management's assessment of the effectiveness of internal control over
financial reporting as of April 30, 2007 and the effectiveness of internal
control over financial reporting as of April 30, 2007, which reports appear in
the April 30, 2007 annual report on Form 10-K of John Wiley & Sons, Inc. Our
report on the consolidated financial statements refers to the Company's adoption
of Statement of Financial Accounting Standards No. 123R, "Share-Based Payment,"
as of May 1, 2006 and SFAS No. 158 "Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87,
88, 106, and 132(R)" on April 30, 2007.
/s/ KPMG LLP
New York, New York
June 28, 2007
Exhibit 31.1
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
------------------------------------------------------------------------
I, William J. Pesce, President and Chief Executive Officer of John Wiley & Sons,
Inc. (the "Company"), hereby certify that:
1. I have reviewed this annual report on Form 10-K of the Company;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report, based on such evaluation; and
d. Disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the
Company's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over
financial reporting; and
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the
Company's board of directors (or persons performing the equivalent
function):
a. all significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting that are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal control over financial reporting.
By: /s/ William J. Pesce
--------------------------
William J. Pesce
President and Chief Executive Officer
Dated: June 28, 2007
Exhibit 31.2
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
------------------------------------------------------------------------
I, Ellis E. Cousens, Executive Vice President and Chief Financial and Operations
Officer of John Wiley & Sons, Inc. (the "Company"), hereby certify that:
1. I have reviewed this annual report on Form 10-K of the Company;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report, based on such evaluation; and
d. Disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the Company's most recent fiscal quarter (the
Company's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over
financial reporting; and
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the
Company's board of directors (or persons performing the equivalent
function):
a. all significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting that are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal control over financial reporting.
By: /s/ Ellis E. Cousens
----------------
Ellis E. Cousens
Executive Vice President and
Chief Financial and Operations Officer
Dated: June 28, 2007
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of John Wiley & Sons, Inc. (the "Company")
on Form 10-K for the year ended April 30, 2007 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, William J. Pesce,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ William J. Pesce
----------------
William J. Pesce
President and Chief Executive Officer
Dated: June 28, 2007
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of John Wiley & Sons, Inc. (the "Company")
on Form 10-K for the year ended April 30, 2007 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Ellis E. Cousens,
Executive Vice President and Chief Financial and Operations Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Ellis E. Cousens
----------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
Dated: June 28, 2007