JOHN WILEY & SONS, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: April 30, 2012
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)
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NEW YORK
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13-5593032
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State or other jurisdiction of incorporation or organization
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I.R.S. Employer Identification No.
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111 River Street, Hoboken, NJ
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07030
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Address of principal executive offices
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Zip Code
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(201) 748-6000
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Registrant’s telephone number including area code
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Securities registered pursuant to Section 12(b) of the Act: Title of each class
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Name of each exchange on which registered
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Class A Common Stock, par value $1.00 per share
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New York Stock Exchange
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Class B Common Stock, par value $1.00 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
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None
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1
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes |X| No | |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes | | No |X |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |X| Accelerated filer | | Non-accelerated filer | | Smaller reporting company | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | | No |X|
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, October 31, 2011, was approximately $2,238.7 million. The registrant has no non-voting common stock.
The number of shares outstanding of the registrant’s Class A and Class B Common Stock as of May 31, 2012 was 49,997,919 and 9,531,216 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, 2012, are incorporated by reference into Part III of this form 10-K.
2
JOHN WILEY AND SONS, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 2012
INDEX
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PART I
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PAGE
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ITEM 1.
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Business
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4
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ITEM 1A.
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Risk Factors
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4-9
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ITEM 1B.
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Unresolved Staff Comments
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9
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ITEM 2.
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Properties
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10
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ITEM 3.
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Legal Proceedings
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10
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ITEM 4
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Mine Safety Disclosures – Not Applicable
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PART II
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ITEM 5.
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Market for the Company’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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11
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ITEM 6.
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Selected Financial Data
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12
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ITEM 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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13-46
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ITEM 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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46-48
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ITEM 8.
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Financial Statements and Supplemental Data
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49-81
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ITEM 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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82
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ITEM 9A.
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Controls and Procedures
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82
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ITEM 9B.
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Other Information
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82
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PART III
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ITEM 10.
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Directors, Executive Officers and Corporate Governance
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82-84
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ITEM 11.
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Executive Compensation
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84
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ITEM 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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85
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ITEM 13.
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Certain Relationships and Related Transactions, and Director Independence
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85
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ITEM 14.
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Principal Accounting Fees and Services
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85
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PART IV
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ITEM 15.
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Exhibits, Financial Statement Schedules and Reports on Form 8-K
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86-94
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SIGNATURES
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3
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Item 1.
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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 provides content and content-enabled digital services to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, reference works, books, database services, and advertising; professional books, subscription products, certification and training services and online applications; and educational content and services. Education content and services includes integrated online teaching and learning resources for undergraduate and graduate students, educators, and lifelong learners worldwide as well as secondary school students in Australia. The Company takes full advantage of its content from all three core businesses in developing and cross-marketing products to its diverse customer base of researchers, professionals, students, and educators. The use of technology enables the Company to make its content efficiently more accessible to its customers around the world. The Company 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
As of April 30, 2012, the Company employed approximately 5,200 persons on a full-time equivalent basis worldwide
.
Financial Information About Business Segments
The note entitled “Segment Information” of the Notes to Consolidated Financial Statements and pages 13 through 41 of the Management’s Discussion and Analysis section of this 10-K are incorporated herein by reference.
Financial Information About Foreign and Domestic Operations and Export Sales
The note entitled “Segment Information” of the Notes to Consolidated Financial Statements and page 20 of the Management’s Discussion and Analysis section of this 10-K are incorporated herein by reference.
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I
tem 1A.
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Risk Factors
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You should carefully consider all of the information set forth in this Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities. The risks below are not the only ones the Company faces. Additional risks not currently known to the Company or that the Company presently deems immaterial may also impair its business operations. The Company’s business, financial condition, results of operations or prospects could be materially adversely affected by any of these risks.
Cautionary Statement Under the Private Securities Litigation Reform Act of 1995:
4
This 10-K and our Annual Report to Shareholders for the year ending April 30, 2012 contain certain forward-looking statements concerning the Company’s operations, performance and financial condition. In addition, the Company provides forward-looking statements in other materials released to the public as well as oral forward-looking information. Statements which contain the words anticipate, expect, believes, estimate, project, forecast, plan, outlook, intend and similar expressions constitute forward-looking statements that involve risk and uncertainties.
Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements.
Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company’s journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key retailers; (vi) the 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
In general, any significant increase in the costs of goods and services provided to the Company may adversely affect the Company’s costs of operation. The Company has a significant investment, 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. To reduce the impact of paper price increases, the Company relies upon multiple suppliers. The Company from time-to-time may hedge the exposure to fluctuations in price by entering into multi-year supply contracts. As of April 30, 2012, there were no outstanding multi-year supply contracts.
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 many countries abroad for specified periods, in most cases the author’s life plus 70 years, but in any event a minimum of 50 years for works published after 1978. The ability of the Company to continue to achieve its expected results depends, in part, upon the Company’s ability to protect its intellectual property rights. The Company’s results may be adversely affected by lack of legal and/or technological protections for its intellectual property in some jurisdictions and markets.
5
The Scientific, Technical, Medical and Scholarly (“STMS”) publishing industry generates much of its revenue from paid customer subscriptions to online and print journal content. There is debate within the academic and government communities whether such journal content should be made available for free, immediately or following a period of embargo after publication. For instance, certain governments are considering mandating that all publications containing information derived from government-funded research be made available to the public at no cost. These mandates have the potential to put pressure on subscription-based publications and favor business models funded by author fees or government and private subsidies. If such regulations are widely implemented, the Company’s operating results could be adversely affected.
Maintaining the Company’s Reputation
Professionals worldwide rely upon many of the Company’s publications to perform their jobs
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It is imperative that the Company consistently demonstrates its ability to maintain the integrity of the information included in its publications. Adverse publicity, whether or not valid, may reduce demand for the Company’s publications.
Trade Concentration and Credit Risk
In the journal publishing business, print subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to the Company between the months of November and January. 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 24% of total annual consolidated revenue and no one agent accounts for more than 10% of total annual consolidated revenue.
The Company’s book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no one book customer accounts for more than 10% of total consolidated revenue and 15% of accounts receivable at April 30, 2012, the top 10 book customers account for approximately 20% of total consolidated revenue and approximately 40% of accounts receivable at April 30, 2012.
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 tax regulations and accounting standards, may adversely affect the Company’s future financial results.
Introduction of New Technologies, Products and Services
The Company must continue to invest in technological and other innovations to adapt and 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.
6
A common trend facing each of the Company’s businesses is the digitization of content and proliferation of distribution channels, either over the internet, or via other electronic means, replacing traditional print formats. The trend to eBooks has also created contraction in the print book retail market which increases the risk of bankruptcy for certain retail customers, potentially leading to the disruption of short-term product supply to the market as well as potential bad debt write-offs. New distribution channels, such as digital formats, the internet, online retailers and growing delivery platforms (e.g. tablets and e-readers), present both threats and opportunities to the Company’s traditional consumer publishing models, potentially impacting both sales volumes and pricing. There is an enhanced risk associated with the illegal unauthorized replication and distribution of digital products.
Information Technology Risks
Information technology is a key part of the Company’s business strategy and operations. As a business strategy, Wiley’s publishing technology enables the Company to provide customers with new and enhanced products and services and is critical to the Company’s success in migrating from print to digital business models. Information technology is also a fundamental component of all our business processes; collecting and reporting business data; and communicating internally and externally with customers, suppliers, employees and others.
Information technology system failures, network disruptions and breaches of data security could significantly disrupt the operations of the Company. Management has designed and implemented policies, processes and controls to mitigate risks of information technology failure and to provide security from unauthorized access to our systems. In addition, the Company has in place disaster recovery plans to maintain business continuity. While the Company has taken steps to address these risks, there can be no assurance that a system failure, disruption or data security breach would not adversely affect the Company’s business and operating results.
Competition for Market Share and Author and Society Relationships
The Company operates in highly competitive markets. Success and continued growth depends greatly on developing new products and the means to deliver them in an environment of rapid technological change. Attracting new authors and professional societies, while retaining our existing business relationships, are also critical to our success.
Introduction of Higher Education Textbook Rental Programs
The Company’s Global Education business publishes educational content for two and four-year colleges and universities, for-profit career colleges, advanced placement classes, as well as secondary schools in Australia. Due to growing demand by students for less expensive textbooks, a number of college bookstores and other entities are offering textbook rental programs to students. In many ways, the textbook rental business model is an adaptation of the used book model that has been in place in the higher education market for many years. Due to its recent introduction it is uncertain what impact, if any, such textbook rental programs will have on Wiley’s results.
7
Interest Rate and Foreign Exchange Risk
Non-U.S. revenues, as well as our substantial non-U.S. net assets, expose the Company’s results to foreign currency exchange rate volatility. Fiscal year 2012 revenue was recognized in the following currencies (as measured in U.S. dollar equivalents): approximately 54% U.S dollar; 28% British pound sterling; 8% euro and 10% other currencies. In addition, our interest-bearing loans and borrowings are subject to risk from changes in interest rates. These risks and the measures we have taken to help contain them are discussed in the
Market Risk
section of this 10-K. For additional details, see Note 13 to the Consolidated Financial Statements in this 10-K which is incorporated herein by reference. Notwithstanding our efforts to foresee and mitigate the effects of changes in fiscal circumstances, we cannot predict with certainty changes in currency and interest rates, inflation or other related factors affecting our business.
Changes in Tax Legislation
The Company is subject to tax laws within the jurisdictions in which it does business. Changes in tax legislation could have a material impact on the Company’s financial results. There have been recent proposals to reform U.S. tax laws that would significantly impact how U.S. multinational corporations are taxed on earnings outside of the U.S. This could have a material impact on the Company’s financial results since a substantial portion of the Company’s income is earned outside the U.S. In addition, the Company is subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals and have a material impact on the Company’s net income, cash flow and financial position.
Risk of Doing Business in Developing and Emerging Markets
The Company sells its products to customers in the Middle East (including Iran and Syria), Africa (including Sudan), Cuba, and other developing markets where it does not have operating subsidiaries. In addition, approximately 9% of STMS journal articles are sourced from authors in China. The Company does not own any assets or liabilities in these markets except for trade receivables. Challenges and uncertainties associated with operating in developing markets has a higher relative risk due to political instability, economic volatility, crime, terrorism, corruption, social and ethnic unrest, and other factors. While sales in these markets are not material to the Company’s business results, adverse developments related to the risks associated with these markets may cause actual results to differ from historical and forecasted future operating results. Disruption in these markets could also trigger a decrease in consumer purchasing power, resulting in a reduced demand for our products.
In November 2011, the United Kingdom, the United States and Canada imposed new sanctions following a United Nations report targeting Iran, including restrictions on financial transactions; business relationships; and prohibitions on direct and indirect trading with listed “designated persons”. The European Union also extended its existing sanctions regime. The Company has assessed its business relationship and transactions with Iran and is in compliance with the regulations. As of April 30, 2012, the Company had outstanding trade receivables with Iran of approximately $2.0 million, mainly related to book sales recognized prior to the sanctions. It is unclear at present whether these sanctions will have an effect on the recovery of this outstanding receivable.
8
Liquidity and Global Economic Conditions
Changes in global financial markets have not had, nor do we anticipate they will have, a significant impact on our liquidity. Due to our significant operating cash flow, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our financing needs for the foreseeable future. As market conditions change, we will continue to monitor our liquidity position. However, there can be no assurance that our liquidity or our results of operations will not be affected by possible future changes in global financial markets and global economic conditions. Similar to other global businesses, we face the potential effects of a global economic recession. Unprecedented market conditions including illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic recession could affect future results.
Effects of Increases in Pension Costs and Funding Requirements
The Company provides defined benefit pension plans for the majority of its employees worldwide. The funding requirements and costs of these plans are dependent upon various factors, including the actual return on plan assets, discount rates, plan participant population demographics and changes in pension regulations. Changes in these factors affect the Company’s plan funding, cash flow and results of operations. A further discussion on how these factors could impact the Company’s consolidated financial statements is included on page 45 within the Management’s Discussion and Analysis section of this 10-K and incorporated herein by reference.
Effects of Inflation and Cost Increases
The Company, from time to time, experiences cost increases reflecting, in part, general inflationary factors. There is no guarantee that the Company can increase selling prices or reduce costs to fully mitigate the effect of inflation on company costs.
Ability to Successfully Integrate Key Acquisitions
The Company’s growth strategy includes title, imprint and other business acquisitions 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 the Company’s costs, revenues, cash flows, and financial position. Acquisitions involve risks and uncertainties, including difficulties in integrating acquired operations and in realizing expected opportunities; diversions of management resources and loss of key employees; challenges with respect to operating new businesses; debt incurred in financing such acquisitions; and other unanticipated problems and liabilities.
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.
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Item 1B.
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Unresolved Staff Comments
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None
9
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Item 2.
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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.
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Location
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Purpose
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Owned or Leased
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Approx. Sq. Ft.
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United States:
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New Jersey
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Corporate Headquarters
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Leased
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404,000
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Warehouse
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Leased
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380,000
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Office & Warehouse
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Leased
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185,000
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Indiana
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Office
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Leased
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123,000
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California
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Office
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Leased
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57,000
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Massachusetts
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Office
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Leased
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43,000
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Iowa
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Office & Warehouse
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Owned
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27,000
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Minnesota
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Offices
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Leased
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12,000
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International:
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Australia
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Office & Warehouse
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Leased
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93,000
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Offices
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Leased
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59,000
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Canada
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Office & Warehouse
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Leased
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87,000
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Office
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Leased
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20,000
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England
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Warehouses
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Leased
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339,000
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Offices
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Leased
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80,000
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Offices
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Owned
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70,000
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Germany
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Office
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Owned
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58,000
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Office
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Leased
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19,000
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India
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Office & Warehouse
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Leased
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16,000
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Singapore
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Offices
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Leased
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68,000
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Office & Warehouse
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Leased
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61,000
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Item 3.
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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.
10
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Item 5.
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Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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The Company’s Class A and Class B shares are listed on the New York Stock Exchange under the symbols JWa and JWb, respectively. Dividends per share and the market price range (Based on daily closing prices) by fiscal quarter for the past two fiscal years were as follows:
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Class A Common Stock
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Class B Common Stock
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Market Price
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Market Price
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Dividends
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High
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Low
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Dividends
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High
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Low
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2012
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||||||
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First Quarter
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$0.20
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$53.00
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$49.08
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$0.20
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$53.22
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$49.28
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Second Quarter
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0.20
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50.71
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42.35
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0.20
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50.90
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43.06
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Third Quarter
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0.20
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49.43
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43.50
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0.20
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49.66
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43.57
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Fourth Quarter
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0.20
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47.93
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44.41
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0.20
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48.00
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44.30
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2011
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||||||
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First Quarter
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$0.16
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$42.84
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$36.87
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$0.16
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$42.62
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$36.83
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Second Quarter
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0.16
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43.75
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35.59
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0.16
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43.72
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35.74
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Third Quarter
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0.16
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46.79
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41.21
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0.16
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46.85
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41.15
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Fourth Quarter
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0.16
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52.64
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46.71
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0.16
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52.81
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46.55
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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. As of April 30, 2012, the approximate number of holders of the Company’s Class A and Class B Common Stock were 1,155 and 94 respectively, based on the holders of record.
During the fourth quarter of fiscal year 2012, the Company made the following purchases of Class A Common Stock under its stock repurchase program:
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Total Number of Shares Purchased
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Average Price Paid Per Share
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Total Number of Shares Purchased as part of a Publicly Announced Program
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Maximum Number of Shares that May be Purchased Under the Program
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||||
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February 2012
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-
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-
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-
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2,916,525
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March 2012
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280,000
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$47.62
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280,000
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2,636,525
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April 2012
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280,000
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$46.78
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280,000
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2,356,525
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Total
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560,000
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$47.20
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560,000
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11
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Item 6.
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Selected Financial Data
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For the Years Ended April 30,
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|||||
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Dollars in millions (except per share data)
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2012
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2011
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2010
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2009
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2008
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Revenue
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$1,782.7
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$1,742.6
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$1,699.1
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$1,611.4
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$1,673.7
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Operating Income (a,b)
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280.4
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248.1
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242.6
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218.5
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225.2
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Net Income (a,b,c)
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212.7
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171.9
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143.5
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128.3
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147.5
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Working Capital (d)
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(66.3)
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(228.9)
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(188.7)
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(157.4)
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(243.6)
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Deferred Revenue in Working Capital (d)
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(342.0)
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(321.4)
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(275.7)
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(246.6)
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(303.2)
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Total Assets
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2,532.9
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2,430.1
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2,308.6
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2,216.8
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2,570.3
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Long-Term Debt
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475.0
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330.5
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559.0
|
754.9
|
797.3
|
|
Shareholders’ Equity
|
1,017.6
|
977.9
|
722.4
|
513.5
|
689.1
|
|
Per Share Data
|
|||||
|
Earnings Per Share (a,b,c)
|
|||||
|
Diluted
|
$3.47
|
$2.80
|
$2.41
|
$2.15
|
$2.49
|
|
Basic
|
$3.53
|
$2.86
|
$2.45
|
$2.20
|
$2.55
|
|
Cash Dividends
|
|||||
|
Class A Common
|
$0.80
|
$0.64
|
$0.56
|
$0.52
|
$0.44
|
|
Class B Common
|
$0.80
|
$0.64
|
$0.56
|
$0.52
|
$0.44
|
|
(a)
|
On February 16, 2011, Borders Group, Inc. (“Borders”) filed a petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy code. The Company recorded a $9.3 million bad debt provision ($6.0 million after taxes) or $0.10 per diluted share related to Borders in fiscal year 2011.
|
|
(b)
|
In fiscal year 2010, the Company recognized intangible asset impairment and restructuring charges principally related to GIT Verlag, a Business-to-Business German-language controlled circulation magazine business acquired in 2002. The fiscal year 2010 charges were $15.1 million ($10.6 million after taxes) and impacted diluted earnings per share by $0.17.
|
|
(c)
|
Tax benefits included in fiscal year results are as follows:
|
|
·
|
Fiscal year 2012
includes a $8.8 million tax benefit, or $0.14 per diluted share, principally associated with new tax legislation enacted in the U.K. that reduced the corporate income tax rate from 27% to 25%. The benefit recognized by the Company reflects the adjustments required to record all U.K. related deferred tax balances at the new income tax rate. Fiscal year 2012 also includes a $7.5 million tax benefit, or $0.12 per diluted share, related to the reversal of an income tax reserve recorded in conjunction with the Blackwell acquisition in fiscal year 2007.
|
|
·
|
Fiscal year 2011
includes a $4.2 million tax benefit, or $0.07 per diluted share, associated with new tax legislation enacted in the U.K. that reduced the corporate income tax rate from 28% to 27%.
|
|
·
|
Fiscal year 2008
includes a $18.7 million tax benefit, or $0.32 per diluted share, associated with new tax legislation enacted in
the
United Kingdom and Germany that reduced the corporate income tax rates from 30% to 28% and from 39% to 29%, respectively.
|
|
(d)
|
The primary driver of the negative working capital is unearned deferred revenue related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by the Company for a number of purposes including paying down debt; funding operations; paying dividends; and purchasing treasury shares. The deferred revenue will be recognized in income as the products are shipped or made available online to the customers over the term of the subscription.
|
12
|
Item 7.
|
Management’s Discussion and Analysis of Business, Financial Condition and Results of Operations
|
The Company provides content and content-enabled digital services to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, reference works, books, database services, and advertising; professional books, subscription products, certification and training services and online applications; and educational content and services. Education content and services includes integrated online teaching and learning resources for undergraduate and graduate students, educators, and lifelong learners worldwide as well as secondary school students in Australia. The Company takes full advantage of its content from all three core businesses in developing and cross-marketing products to its diverse customer base of researchers, professionals, students, and educators. The use of technology enables the Company to make its content efficiently more accessible to its customers around the world. The Company 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. The Company’s revenue grew at a compound annual rate of 8% over the past five years, which includes the acquisition of Blackwell Publishing (Holdings) Ltd. (“Blackwell”) in February 2007.
Core Businesses
Scientific, Technical, Medical and Scholarly (STMS):
The Company is one of the leading publishers for the scientific, technical, medical and scholarly communities worldwide, including academic, corporate, government, and public libraries; researchers; scientists; clinicians; engineers and technologists; scholarly and professional societies; and students and professors. STMS products include journals, books, major reference works, databases, clinical decision support tools and laboratory manuals and workflow tools. STMS publishing areas include the physical sciences and engineering, health sciences, social science and humanities and life sciences. The Company’s STMS products are sold and distributed globally, online and in print through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, bookstores, online booksellers and other customers. Publishing centers include Australia, Germany, India, Singapore, the United Kingdom and the United States. STMS accounted for approximately 58% of total Company revenue in fiscal year 2012 and generated revenue growth at a compound annual rate of 12% over the past five years, including the February 2007 acquisition of Blackwell, a leading publisher of journals and books for the academic, research and professional markets focused on science, technology, medicine and social sciences and humanities. The graph below presents STMS revenue by product type for fiscal year 2012:
13
Approximately 53% of journal subscription revenue is derived from publishing rights owned by the Company. Publishing alliances also play a major role in STMS’s success. Approximately 47% of journal subscription revenue is derived from publication rights which are owned by professional societies and published by the Company pursuant to a long-term contract or owned jointly with a professional society. These society alliances bring mutual benefit, with the societies gaining Wiley’s publishing, marketing, sales and distribution expertise, while Wiley benefits from being affiliated with prestigious societies and their members. The Company publishes the journals of many prestigious societies, including the American Cancer Society, the American Heart Association, the British Journal of Surgery Society, the Federation of European Biochemical Societies, the European Molecular Biology Organization, the American Anthropological Association and the German Chemical Society.
STMS is a provider of content and services in evidence-based medicine (EBM). Through the Company’s alliance with The Cochrane Collaboration, the Company publishes
The Cochrane Library
, a premier source of high-quality independent evidence to inform healthcare decision-making, provides the foundation for the Company’s growing suite of EBM products designed to improve patient healthcare. EBM facilitates the effective management of patients through clinical expertise informed by best practice evidence that is derived from medical literature.
Wiley Online Library
, one of the world’s broadest and deepest multidisciplinary collections of online resources covering life, health and physical sciences, social science and the humanities, was launched in August 2010. Built on the latest technology and designed with extensive input from scholars around the world,
Wiley Online Library
delivers seamless integrated access to over 5 million articles from 1,600 journals, 12,000 books, and hundreds of reference works, laboratory protocols and databases.
Wiley Online Library
provides the user with intuitive navigation, enhanced discoverability, expanded functionality and a range of personalization options.
Wiley Online Library
provides the Company with revenue opportunities, such as new applications and business models, online advertising, deeper market penetration and individual sales and pay-per-view options.
Access to
Wiley Online Library
is sold through licenses with academic and corporate libraries, consortia and other academic, government and corporate customers. The Company offers a range of licensing options including customized suites of journal publications for individual customer needs as well as subscriptions for individual journal and online book publications. Licenses are typically sold in durations of one to three years. The Company also provides fee-based access to its content through its
Article Select
and
PayPerView
programs which offer non-subscribed journal content, book chapters and major reference work articles.
Wiley Online Library
takes advantage of technology to update content frequently and to add new features and resources on an ongoing basis to increase the productivity of scientists, professionals and students. Two examples are
EarlyView
, through which customers can access individual articles well in advance of print publication, and
MobileEditions
, which enables users to view tables of content and abstracts on wireless handheld devices and Web-enabled phones.
In February 2011, the Company launched
Wiley Open Access
, its new publishing program for open-access research articles. Under the
Wiley Open Access
business model, research articles submitted by authors are published and compiled in certain subject areas into open-access journals. The journal compilation is available free online to the general public on
Wiley Online Library.
A publication service fee is charged upon acceptance of a research article by the Company. The service fee may be paid by the individual author. To actively support researchers and members who wish to publish in
Wiley Open Access
journals an academic or research institution, a society or a corporation may fund the fee directly. In return for the service fee, the Company provides its customary publishing, editing, peer review and technology services. All accepted open-access articles are subject to the same rigorous peer-review process applied to the Company’s subscription based journals which are supported by the Company’s network of prestigious journals and societies. In addition to
Wiley Open Access
, the company provides authors with the opportunity to provide their individual research articles that are published within the Company’s paid subscription journals, free through
OnlineOpen.
OnlineOpen
articles are also available free to the general public via
Wiley Online Library
.
14
The Company has been focused on reducing costs associated with the STMS business to finance investments in enabling technology and new businesses. The cost savings are principally the result of increased off-shoring of certain functions and activities from high cost locations to Singapore and other countries in Asia. Significant portions of the STMS journals and books content management, customer support and central marketing functions have been off-shored. In addition to cost savings, the off-shoring of these functions has enabled the Company to focus its resources on value-added activities, such as process and service enhancements.
Professional/Trade:
The Company’s Professional/Trade business acquires, develops and publishes books, workflow solutions and other information services in the subject areas of business, technology, architecture, cooking, psychology, professional education, travel, health, 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 websites. The Company’s Professional/Trade customers are professionals, consumers, and students worldwide. Publishing centers include Australia, Canada, Germany, India, Singapore, the United Kingdom and the United States. Professional/Trade publishing accounted for approximately 24% of total Company revenue in fiscal year 2012 and generated revenue growth at a compound annual rate of 1% over the past five years. The graph below presents P/T revenue by product type for fiscal year 2012:
Key revenue growth strategies of the Professional/Trade business include providing critical content and content-enabled digital services to professionals and developing its leading brands and franchises, and executing strategic acquisitions.
In February 2012, Wiley acquired Inscape Holdings, Inc. (“Inscape”), a leading provider of workplace learning solutions, for approximately $85 million in cash, net of cash acquired.
The acquisition will combine Wiley’s deep well of valuable content and global reach in leadership and training with Inscape’s technology, distribution network, and talent expertise, including the innovative EPIC online assessment-delivery platform and an elite global authorized distributors network of nearly 1,700 independent consultants, trainers, and coaches. Inscape’s solution-focused products are used in thousands of organizations, including major government agencies and Fortune 500 companies. Inscape was generating approximately $20 million annually in revenue prior to the acquisition.
15
Inscape’s solutions-focused DiSC® offerings complement the products published under Wiley’s Pfeiffer brand, such as Kouzes and Posner’s
Leadership Practices Inventory®
, in the growing workplace learning industry. Through the Pfeiffer brand, Wiley has a 40-year history of serving professional development and resource needs of learning professionals. The combined Inscape and Pfeiffer businesses will increase the Company’s presence in the professional development and skill assessment arena. We believe Inscape’s competitive strengths will also advance a number of P/T’s major strategic goals. As a workplace learning business with more than 50% of its revenue from a proprietary digital platform, Inscape will enable Wiley to move more rapidly into digital delivery within the growing workplace learning and assessment market and build its strong position in the category of leadership development. Inscape also enhances Wiley’s global presence, serving customers around the world in more than 30 languages each year, with approximately 35% of revenue generated outside the U.S through Inscape’s global distributor network.
In March 2012, Wiley announced that it was exploring opportunities to sell a number of consumer print and digital publishing assets in its Professional/Trade business as they no longer align with the company’s long-term strategies. Fiscal year 2012 revenue associated with the assets to be sold was approximately $80 million with a direct contribution to profit, before shared service expenses, of approximately $6 million. Assets include travel (including the well-known Frommer’s brand), culinary, general interest, nautical, pets, crafts, Webster’s New World, and Cliff’s Notes. Wiley will
re-deploy resources in its Professional/Trade business to
build on its global market-leading positions in business, finance, accounting, leadership, technology, architecture, psychology, education, and through the
For Dummies
brand.
Publishing alliances and franchise products are central to the Company’s strategy. The 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 Bloomberg Press, the American Institute of Architects, the Leader to Leader Institute, Fisher Investments, the Culinary Institute of America and many others.
Growing revenue from digital products and services represents a core strategy for Professional/Trade, including increased availability of eBooks, advertising from branded websites and online tools and services.
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.
Global Education:
The Company’s Global Education business publishes educational content for two and four-year colleges and universities, for-profit career colleges, advanced placement classes, as well as secondary schools in Australia. Global Education’s mission is to help teachers teach and students learn. In doing so, our strategy is to provide personalized content, tools and services that deliver demonstrable results to students, faculty and institutions. Global Education offers innovative products and services principally delivered through college bookstores and online distributors, with customers having access to content in multi-media formats, as well as the traditional textbook. Global Education’s cost-effective, flexible solutions are available in each of its publishing disciplines, including the sciences, engineering, mathematics, business/accounting, geography, computer science, statistics, education, culinary, hospitality, psychology and world languages.
16
Global Education accounted for approximately 18% of total Company revenue in fiscal year 2012 and generated revenue growth at a compound annual rate of 6% over the past five years. The graph below presents Global Education revenue by product type for fiscal year 2012:
Global Education offers high-quality online learning solutions including
WileyPLUS
, it’s research-based, online environment for effective teaching and learning that is integrated with a complete digital textbook.
WileyPLUS
improves student learning through instant feedback, personalized learning plans, and self-evaluation tools and a full range of course-oriented activities, including online planning, presentations, study, homework and testing. Global Education encourages and supports the customization of its content.
Wiley Custom Learning Solutions
is a full-service custom publishing program that offers an array of tools and services designed to put content creation in instructors’ hands. Our suite of custom products empowers users to create high-quality, economical education solutions tailored to meet individual classroom needs. Through a custom textbook system,
Wiley Custom Select
, instructors can easily build print and digital materials tailored to their specific course needs. With
Wiley Custom Select
, instructors can also add their own content to create a customized solution derived from one or more Wiley resources.
The Company also provides the services of the Wiley Faculty Network, a global community of faculty that offers guidance, training, and resources. Through the Wiley Faculty Network, instructors and administrators can collaborate with each other, attend virtual and live events, and utilize a wealth of resources all designed to help them grow as educators. Colleagues can also benefit from taking part in the Wiley Learning Institute, an online center for professional development offering workshops, applied learning, coaching programs, and a unique community experience.
Strategic partnerships and relationships with companies such as Microsoft® and Blackboard are also an important component of Global Education’s growth strategy. The ability to join Wiley’s product development, sales, marketing, distribution and technology with a partner’s content and/or brand name has contributed to Global Education’s success.
17
Publishing Operations
Journal Products:
The Company publishes approximately 1,600 Scientific, Technical, Medical and Scholarly and Professional/Trade journals. Journal subscription revenue and other related publishing income, such as advertising, backfile sales, the licensing of publishing rights, journal reprints and individual article sales accounted for approximately 49% of the Company’s consolidated fiscal year 2012 revenue. The journal portfolio includes titles owned by the Company, in which case they may or may not be sponsored by a professional society; titles owned jointly with a professional society; and titles owned by professional societies and published by the Company pursuant to long-term contracts.
Societies that sponsor or own such journals generally receive a royalty and/or other consideration. The Company may procure editorial services from such societies on a pre-negotiated fee basis. The Company also enters into agreements with outside independent editors of journals that state the duties of the editors, and the fees and expenses for their services. Contributors of articles to the Company’s journal portfolio transfer publication rights to the Company or a professional society, as applicable. Journal articles may be based on funded research through government or charitable grants. In certain cases the terms of the grant may require the grant holder to make articles (either the published version or an earlier unedited version) available free of charge to the public, typically after an embargo period. Funded open access under the Company’s
Wiley Open Access
and
OnlineOpen
business models facilitate the ability of the grant holder to comply.
The Company sells journal subscriptions directly through Company sales representatives; indirectly through independent subscription agents; through promotional campaigns; and through memberships in professional societies for those journals that are sponsored by societies. Journal subscriptions are primarily licensed through contracts for online content delivered through the Company’s web-based platform,
Wiley Online Library.
Contracts are negotiated by the Company directly with customers or their subscription agents. Licenses range from one to three years in duration and typically cover calendar years.
Printed journals are generally mailed to subscribers directly from independent printers. The Company does not own or manage printing facilities. The print journal content is also available online. Subscription revenue is generally collected in advance, and deferred until the related issue is shipped or made available online at which time the revenue is earned.
Book Products:
Book products and book related publishing revenue, such as advertising revenue and the sale of publishing rights, accounted for approximately 51% of the Company’s consolidated fiscal year 2012 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 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. The Company may make advance payments against future royalties to authors of certain publications. Royalty advances are reviewed for recoverability and a reserve for loss is maintained, if appropriate.
The Company continues to add new titles, revise existing titles, and discontinue the sale of others in the normal course of its business, also creating adaptations of original content for specific markets fulfilling customer demand. The Company’s general practice is to revise its textbooks every two to five years, if warranted, and to revise other titles as appropriate. Subscription-based products are updated more frequently on a regular schedule.
18
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. Sales of professional and consumer books also result from direct mail campaigns, telemarketing, online access, advertising and reviews in periodicals. 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 return experience and current market trends.
Adopted textbooks, related supplementary material, and online products such as
WileyPLUS
, are sold primarily to bookstores and online booksellers, serving both for-profit and nonprofit 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 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 sale of new textbooks.
Like most other publishers, the Company generally contracts with independent printers and binderies globally for their services. The Company purchases its paper from independent suppliers and printers. The fiscal year 2012 weighted average U.S. paper prices increased approximately 1% from fiscal year 2011. Approximately 60% of the Company’s paper inventory is held in the United States. Management believes that adequate printing and binding facilities, sources of paper and other required materials are available to it, and that it is not dependent upon any single supplier. Printed book products are distributed from both Company-operated warehouses and independent distributors.
The Company develops content in a digital format that can be used for online and print products, resulting 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 Online Library
,
WileyPLUS
,
Custom Select
and other platforms, and in eBook formats through direct relationships with eBook vendors and 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 digital products and services will continue to increase. Accordingly, to properly service its customers and to remain competitive, the Company has increased its expenditures related to such new technologies and anticipates it will continue to do so for the foreseeable future.
The Company’s online presence not only enables it to deliver content online, but also to sell more books. The growth of online booksellers benefits the Company because they provide unlimited virtual “shelf space” for the Company’s entire backlist.
Marketing and distribution services are made available to other publishers under agency arrangements. The Company also engages in co-publishing 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, translations, and digital uses of its content.
19
Advertising Revenue:
The Company generates advertising revenue from print and online journal subscription products; controlled circulation magazines which are issued for free to a specific target audience; its online publishing platform,
Wiley Online Library
; the
Wiley Job Network
, a full service online job board that launched in fiscal year 2012; online events such as webinars and virtual conferences; community interest websites such as s
pectroscopyNOW.com
and consumer brand websites like
Dummies.com
. These revenues accounted for approximately 3% of the Company’s consolidated fiscal year 2012 revenue.
The
Wiley Job Network
is a new online recruitment tool that enables employers to attract talented applicants from high-caliber users in science, technology, healthcare, law, and business. Recruiters and employers who advertise jobs on the network of career sites reach a large pool of talented professionals and specialists who are regular users of
Wiley Online Library
.
Advertisements are sold by company and independent sales representatives to advertising agencies representing the Company’s target customers. Typical customers include worldwide pharmaceutical companies; equipment manufacturers and distributors servicing the pharmaceutical industry; recruiters; companies servicing the travel industry and a variety of businesses targeting the Company’s consumer brand customers. The Company’s advertising growth strategy focuses on increasing the volume of advertising on its online publishing platform; leveraging the brand recognition of its titles and society partnerships; the development of new advertising products such as online video promotions or event sponsorship arrangements; and advertising in new and emerging technologies such as the mobile devices market (i.e. smart phone and
iPad
applications).
Global Operations
The Company’s publications and services 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 independent agents as well as independent sales representatives in countries not served by the Company. John Wiley & Sons International Rights, Inc., a wholly owned subsidiary of the Company, sells reprint and translations rights worldwide. The Company publishes or licenses others to publish its products, which are distributed throughout the world in many languages. Approximately 50% of the Company’s consolidated fiscal year 2012 revenue was billed in non-U.S. markets.
The global nature of the Company’s business creates an exposure to foreign currency fluctuations relative to the U.S dollar. Each of the Company’s geographic locations sells products worldwide in multiple currencies. Revenue and deferred revenue, although billed in multiple currencies are accounted for in the local currency of the selling location. Fiscal year 2012 revenue was recognized in the following currencies (on an equivalent U.S. dollar basis): approximately 54% U.S dollar; 28% British pound sterling; 8% euro and 10% other currencies.
Competition and Economic Drivers within the Publishing Industry
The sectors of the publishing and information services industry in which the Company is engaged are competitive. The principal competitive criteria for the publishing industry are considered to be the following: product quality, customer service, suitability of format and subject matter, author reputation, price, timely availability of both new titles and revisions of existing books, digital availability of published products, and timely delivery of products to customers.
20
The Company is in the top rank of publishers of scientific, technical, medical and scholarly journals worldwide, a leading commercial research chemistry publisher; the leading professional society journal publisher; one of the leading publishers of university and college textbooks and related materials for the “hardside” disciplines, (i.e. sciences, engineering, and mathematics), and a leading publisher in its targeted professional/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, excluding unusual or one-time events, and considering worldwide and regional economic and market conditions. The Company evaluates market share statistics for publishing programs in each of its businesses. STMS uses various reports to monitor competitor performance and industry financial metrics. Specifically for STMS journal titles, the ISI Impact Factor, published periodically by the Institute for Scientific Information, is used as a key metric of a journal title’s influence in scientific publishing. For Professional/Trade, the Company evaluates market share statistics periodically published by BOOKSCAN, a statistical clearinghouse for book industry point of sale data in the United States. The statistics include survey data from all major retail outlets, online booksellers, mass merchandisers, small chain and independent retail outlets. For Higher Education, the Company subscribes to Management Practices Inc., which publishes customized comparative sales reports.
Results of Operations
Throughout this report, references to amounts “excluding foreign exchange”, “currency neutral” and “performance basis” exclude both foreign currency translation effects and transactional gains and losses. Foreign currency translation effects are based on the change in average exchange rates for each reporting period multiplied by the current period’s volume of activity in local currency for each non-U.S. location. Unless otherwise noted, all variance explanations below are on a currency neutral basis.
Fiscal Year 2012 Summary Results
Revenue and Gross Profit:
Revenue for fiscal year 2012 increased 2% to $1,782.7 million, or 1% excluding the favorable impact of foreign exchange. On a currency neutral basis, growth in Scientific, Technical, Medical and Scholarly (“STMS”) was partially offset by declines in Professional/Trade (“P/T”) and Global Education (“GEd”). Gross profit margin for fiscal year 2012 of 69.5% was 40 basis points higher than prior year mainly due to increased sales of higher margin digital products in P/T and STMS, partially offset by higher composition costs in GEd to support business growth. Approximately 40% of the Company’s revenue for fiscal year 2012 was generated from digital products and services, as compared to 37% in the prior year.
Operating and Administrative Expenses:
Operating and administrative expenses for fiscal year 2012 of $922.2 million were 1% higher than prior year, or flat excluding the unfavorable impact of foreign exchange. Lower employment cost ($7 million) mainly due to accrued incentive compensation; lower distribution costs ($4 million) and lower travel and advertising costs due to cost containment initiatives ($3 million); were offset by higher technology costs ($13 million); and other ($1 million), mainly higher STMS editorial costs to support business growth.
21
On February 16, 2011, Borders Group, Inc. (“Borders”) filed a petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. Accordingly, in fiscal year 2011 the Company recorded a pre-tax bad debt provision of $9.3 million, or $6.0 million after tax ($0.10 per share), within the P/T reporting segment related to Borders. The provision represented the Company’s outstanding receivable with Borders, net of existing reserves and recoveries. There were no additional charges or bad debt expense with respect to this customer.
Operating Income:
Operating income for fiscal year 2012 increased 13% to $280.4 million, or 6% excluding the favorable impact of foreign exchange and the prior year Borders bad debt provision mainly due to the top-line results and higher gross profit margins.
Interest Expense/Income, Foreign Exchange and Other:
Interest expense for fiscal year 2012 decreased $8.3 million to $9.0 million. Lower interest rates and lower average debt contributed approximately $4.2 million and $4.1 million to the decrease, respectively. Losses on foreign currency transactions primarily due to intercompany loans in currencies other than U.S. dollars, were $2.3 million and $2.2 million for fiscal years 2012 and 2011, respectively. Interest income and other for fiscal year 2012 increased $0.6 million to $3.0 million mainly due to a favorable copyright infringement settlement received by the Company in the current year.
Provision for Income Taxes:
The effective tax rate for fiscal year 2012 was 21.8% compared to 25.6% in the prior year. During fiscal years 2012 and 2011, the Company recorded non-cash deferred tax benefits of $8.8 million ($0.14 per share) and $4.2 million ($0.07 per share), respectively, principally associated with new tax legislation enacted in the U.K. that reduced the U.K. statutory income tax rates by 2% and 1%, respectively. The benefits recognized by the Company reflect the remeasurement of all applicable U.K. deferred tax balances to the new income tax rates as of April 1, 2012 and 2011, respectively. In addition, in fiscal year 2012 due to the expiration of the statute of limitations the Company also released an income tax reserve of approximately $7.5 million ($0.12 per share) originally recorded in conjunction with the purchase accounting for the Blackwell acquisition. Excluding the tax benefits described above, the Company’s effective tax rate for fiscal year 2012 was 27.8% compared to 27.4% in the prior year. The increase was mainly due to State net operating loss benefits of $1.9 million ($0.03 per share) recognized by the Company in the prior year, partially offset by higher tax benefits on non-U.S. earnings in the current year.
Earnings Per Share:
Earnings per diluted share for fiscal years 2012 and 2011 were $3.47 and $2.80, respectively. Excluding the effects of favorable foreign exchange ($0.08), the prior year Borders bad debt provision ($0.10), the changes in fiscal year 2012 and 2011 deferred tax benefits associated with the U.K. corporate income tax rates ($0.07) and the fiscal year 2012 tax reserve release ($0.12), earnings per diluted share increased 11% or $0.30 per share.
22
Fiscal Year 2012 Segment Results
|
Scientific, Technical, Medical and Scholarly (STMS):
|
||||
|
% change
|
||||
|
Dollars in thousands
|
2012
|
2011
|
% change
|
w/o FX
|
|
Journal Subscriptions
|
$650,938
|
$621,551
|
5%
|
2%
|
|
Books
|
179,204
|
175,611
|
2%
|
1%
|
|
Other Publishing Income
|
210,585
|
201,740
|
4%
|
3%
|
|
Total Revenue
|
$1,040,727
|
$998,902
|
4%
|
2%
|
|
Gross Profit
|
762,300
|
729,931
|
4%
|
2%
|
|
Gross Profit Margin
|
73.2%
|
73.1%
|
|
|
|
Direct Expenses & Amortization
|
310,026
|
305,134
|
2%
|
0
%
|
|
Direct Contribution to Profit
|
$452,274
|
$424,797
|
6%
|
4%
|
|
Direct Contribution Margin
|
43.5%
|
42.5%
|
|
|
Revenue:
STMS revenue for fiscal year 2012 increased 4% to $1,040.7 million, or 2% excluding the favorable impact of foreign exchange. The growth was driven by journal subscriptions, books and other publishing income.
Journal Subscriptions
Journal subscription revenue for fiscal year 2012 increased 5% to $650.9 million, or 2% excluding the favorable impact of foreign exchange. The growth was mainly driven by increased subscriptions ($7 million), new society business ($4 million) and the timing of production scheduling ($2 million). As of April 30, 2012, receipts for calendar year 2012 journal subscriptions grew approximately 3% over calendar year 2011 with approximately 95% of expected calendar year 2012 subscription receipts received.
Books
Book revenue for fiscal year 2012 increased 2% to $179.2 million, or 1% excluding the favorable impact of foreign exchange. The growth was driven by higher digital reference and eBook sales ($6 million) and lower returns ($2 million), partially offset by a decline in print books ($5 million).
Other Publishing Income
Other publishing income for fiscal year 2012 of $210.6 million increased 4% over prior year, or 3% on a currency neutral basis. The improvement was driven by increased sales of rights ($5 million), journal advertising ($2 million) and pay-per-view access ($2 million), partially offset by a decline in reprints ($1 million) and backfiles ($1 million).
Total STMS Revenue by Region (on a currency neutral basis)
|
·
|
Americas
grew 3% to $392.1 million
|
|
·
|
EMEA
grew 1% to $580.9 million
|
|
·
|
Asia-Pacific
grew 4% to $67.7 million
|
23
Gross Profit:
Gross profit margin for fiscal year 2012 improved 10 basis points to 73.2%. The improvement was mainly driven by increased sales of higher margin digital products (50 basis points), partially offset by higher royalty rates (40 basis points).
Direct Expenses and Amortization:
Direct expenses and amortization of $310.0 million increased 2% from the prior year, but was flat excluding the unfavorable impact of foreign exchange. Lower accrued incentive compensation ($4 million) and lower travel and advertising costs due to cost containment initiatives ($2 million) were offset by higher editorial costs ($3 million) and additional headcount ($2 million) to support business growth; and a bad debt provision related to an outstanding receivable with a university in Iran ($1 million).
Direct Contribution to Profit:
Direct contribution to profit increased 6% to $452.3 million, or 4% excluding the favorable impact of foreign exchange. Direct contribution margin improved 100 basis points to 43.5% in fiscal year 2012. The improvement was driven by the top-line results and higher gross profit margins.
Society Partnerships
|
·
|
24 new society journals were signed with combined annual revenue of approximately $9 million
|
|
·
|
103 renewals/extensions were signed with approximately $45 million in combined annual revenue
|
|
·
|
7 journals were not renewed in fiscal year 2012 which had combined annual revenue of approximately $1 million
|
New Society Contracts
|
·
|
The Reading Teacher, Journal of Adolescent & Adult Literacy, and Reading Research Quarterly
, for the International Reading Association
|
|
·
|
TESOL Quarterly
and
TESOL Journal
, for Teachers of English to Speakers of Other Languages (TESOL)
|
|
·
|
The Hastings Center Report
, a leading journal in applied ethics, covering areas such as bioethics and the environment
|
|
·
|
Symbolic Interaction
, for the Society for the Study of Symbolic Interaction
|
|
·
|
International Journal of Pediatric Obesity
, for the International Association for the Study of Obesity
|
|
·
|
PsyCh Journal
, for the Institute of Psychology, Chinese Academy of Sciences (IPCAS), China's national psychology research institute. The journal will be the first English-language Psychology journal to appear from China.
|
|
·
|
Four new titles added to our existing partnership with the
Policy Studies Organisation: Policy & Internet, Poverty & Public Policy, Risk, Hazards & Crisis in Public Policy
, and
World Medical & Health Policy
.
|
|
·
|
European Journal of Pain
for the European Federation of IASP Chapters (EFIC)
|
|
·
|
Pharmacotherapy
, for the American College of Clinical Pharmacists
|
|
·
|
Rehabilitation Nursing Journal
, for the Association of Rehabilitation Nurses (ARN)
|
|
·
|
British Journal of Educational Technology
, for the British Educational Research Association (BERA)
|
|
·
|
Oceania
and
Archaeology in Oceania
, for the University of Sydney
|
|
·
|
Biology of the Cell
for the French Society for Cell Biology and the French Society for Microscopy
|
24
|
·
|
Journal of the American Heart Association
for the American Heart Association – the first open access online-only journal for the AHA. The online journal has been launched on-time and on-budget. This is a new society relationship for STMS.
|
|
·
|
British Educational Research Journal
(BERJ) and a new-start review journal for the British Educational Research Association (BERA). BERA is the largest educational research organization outside of the U.S., with 1,800 members.
|
|
·
|
Obesity,
for The Obesity Society
|
|
·
|
Journal for the Society for Information Display (SID)
|
Alliances
|
·
|
Strategic alliance with CECity, Inc. to provide healthcare professionals with new, customized quality and learning solutions. CECity provides healthcare information technology platforms that link job performance improvement, lifelong learning, and quality reporting to drive high-quality clinical outcomes and patient care. This partnership will employ CECity’s market-leading technology capabilities with Wiley’s quality content to develop personalized eLearning and job performance improvement services for healthcare professionals.
|
Acquisitions
|
·
|
In May 2012, Wiley announced the acquisition of Harlan Davidson Inc. (HDI), a small family-owned publishing company in Wheeling, IL. The acquisition builds on Wiley’s existing high quality American History portfolio, and strengthens growing curriculum areas such as World History, Atlantic History and State History.
|
New Product and Service Launches
|
·
|
In September, Wiley launched the Wiley Job Network – a new online recruitment tool that enables employers to attract talented applicants from high-caliber users in science, technology, healthcare, law, and business. Recruiters and employers who advertise jobs on our network of career sites reach a large pool of talented professionals and specialists who are regular users of one of the world’s leading research platforms,
Wiley Online Library
.
|
Digital Update
|
·
|
Digital revenue now accounts for 61% of total STMS revenue.
|
|
·
|
The Wiley Job Network has surpassed 50,000 registered users and over 2 million job views since its launch in September.
|
|
·
|
Total articles accessed on
Wiley Online Library
increased 26%.
|
STMS Journal Quality and Impact Factors
|
·
|
In June, Wiley announced that the number of journal titles with an impact factor in the Thomson ISI® 2010 Journal Citation Reports increased 7% to 1,087 titles, of which 317 are ranked in the top ten. Approximately 73% of Wiley’s journal portfolio has a reported impact factor. Impact Factor is a leading evaluator of journal influence and impact, as it reflects the frequency that peer-reviewed journals are cited by researchers.
|
25
|
Professional/Trade (P/T):
|
||||
|
% change
|
||||
|
Dollars in thousands
|
2012
|
2011
|
% change
|
w/o FX (a)
|
|
Books
|
$378,400
|
$387,228
|
-2%
|
-3%
|
|
Other Publishing Income
|
55,258
|
49,860
|
11%
|
11%
|
|
Total Revenue
|
$433,658
|
$437,088
|
-1%
|
-1%
|
|
Gross Profit
|
272,188
|
269,112
|
1%
|
1%
|
|
Gross Profit Margin
|
62.8%
|
61.6%
|
|
|
|
Direct Expenses & Amortization
|
160,290
|
173,616
|
-8%
|
-3%
|
|
Direct Contribution to Profit
|
$111,898
|
$95,496
|
17%
|
6%
|
|
Direct Contribution Margin
|
25.8%
|
21.8%
|
|
|
|
(a)
|
Adjusted to exclude a fiscal year 2011 bad debt provision of $9.3 million related to Borders from direct expenses and direct contribution.
|
Revenue:
P/T revenue for fiscal year 2012 declined 1% to $433.7 million. On a currency neutral basis, book revenue decreased 3% to $378.4 million, while other publishing income grew 11% to $55.3 million. The decline in book revenue was mainly driven by softness in the consumer line ($8 million), primarily cooking and travel, and declines in technology and business ($2 million). The declines in consumer, technology and business were due to the residual effects of the Borders’ bankruptcy, including liquidation sales which we believe were completed by mid-September and the inclusion of sales to Borders in the prior year, combined with a weak global economy and reduced shelf-space for print titles. The growth in other publishing income reflects the incremental revenue from the Company’s acquisition of Inscape on February 16, 2012 ($3 million) and increased revenue from advertising and distribution services.
Total P/T revenue by Region (on a currency neutral basis)
|
·
|
Americas
was flat at $342.8 million
|
|
·
|
EMEA
fell 5% to $58.6 million
|
|
·
|
Asia-Pacific
fell 1% to $32.3 million
|
Total P/T Revenue by Major Category (on a currency neutral basis)
|
·
|
Business
grew 2% to $141.6 million
|
|
·
|
Consumer
fell 6% to $129.2 million due in large part to Borders and the weak global economy
|
|
·
|
Technology
fell 1% to $87.1 million
|
|
·
|
Professional Education
was flat with the prior year at $28.0 million
|
|
·
|
Architecture
was flat with the prior year at $25.0 million
|
|
·
|
Psychology
declined 3% to $13.0 million
|
Gross Profit:
Gross profit margin for fiscal year 2012 improved 120 basis points to 62.8%. The improvement was mainly driven by increased eBook sales (70 basis points), high margin incremental revenue from the Inscape acquisition (20 basis points) and lower composition costs (30 basis points).
26
Direct Expenses and Amortization:
Direct expenses and amortization for fiscal year 2012 decreased 8% to $160.3 million, or 3% on a currency neutral basis and excluding the Borders bad debt provision in the prior year. The improvement was principally driven by lower sales, marketing and advertising costs due to cost containment initiatives ($2 million), a reduction in the bad debt provision for other retail accounts ($2 million) and lower accrued incentive compensation ($1 million).
Direct Contribution to Profit:
Direct contribution to profit for fiscal year 2012 increased 17% to $111.9 million, or 6% on a currency neutral basis and excluding the Borders bad debt provision in the prior year. Direct contribution margin for fiscal year 2012 was 25.8% as compared to 21.8% in the prior year. On a currency neutral basis and excluding the Borders bad debt provision in the prior year, direct contribution margin improved 180 basis points reflecting higher gross profit margins and lower direct expenses.
Alliances
Wiley (Pfeiffer) partnered with CPP, a leader in research, training, and organizational development tools for a jointly developed
Leadership Plus Report.
The product,
built on the integration of Wiley's
Leadership Practices Inventory
® (LPI®) and CPP's Myers-Briggs® personality assessment, combines the LPI's in-depth view of applied leadership behavior practices through 360-degree feedback with the Myers-Briggs self-evaluation and insight into personality.
Acquisitions
In February, Wiley acquired Inscape Holdings, a leading global provider of workplace learning solutions, for approximately $85 million in cash, net of cash acquired. The acquisition will combine Wiley's reservoir of valuable content and global reach in leadership and training with Inscape's technology, distribution network, and talent expertise, including the innovative EPIC online assessment-delivery platform and an elite network of nearly 1,700 independent consultants, trainers, and coaches. Inscape was generating approximately $20 million annually in revenue prior to the acquisition. Inscape derives approximately two-thirds of its revenue from digital products and services.
Potential Consumer Divestiture
In March, Wiley announced that it intends to explore opportunities to sell a number of its consumer print and digital publishing assets as they no longer align with the company’s long-term strategy. Fiscal Year 2012 revenue associated with the assets to be sold was approximately $80 million with a direct contribution to profit, before shared-service expenses, of approximately $6 million. Assets include travel (including the well-known Frommer’s brand), culinary, general interest, nautical, pets, crafts, Webster’s New World, and Cliff’s Notes. Wiley will re-deploy resources in its Professional/Trade business to build on its global market-leading positions in business, finance, accounting, leadership, technology, architecture, psychology, education, and through the
For Dummies
brand.
Digital Update
|
·
|
Digital revenue includes eBooks, online advertising, content-enabled services and content licensing.
|
|
·
|
Digital revenue accounted for 15% of total P/T revenue, up from 10% in the prior year.
|
|
·
|
eBook sales increased approximately 70% over prior year to approximately $40 million, or 9% of total P/T revenue. Strong eBook growth came from all accounts, notably Amazon, Barnes and Noble and Apple.
|
27
|
Global Education (GEd):
|
||||
|
% change
|
||||
|
Dollars in thousands
|
2012
|
2011
|
% change
|
w/o FX
|
|
Print Books
|
$208,682
|
$211,611
|
-1%
|
-3%
|
|
Non-Traditional & Digital Content
|
87,857
|
83,789
|
5%
|
5%
|
|
Other Publishing Income
|
11,818
|
11,161
|
6%
|
1%
|
|
Total Revenue
|
$308,357
|
$306,561
|
1%
|
-1%
|
|
Gross Profit
|
204,858
|
204,465
|
0
%
|
-1%
|
|
Gross Profit Margin
|
66.4%
|
66.7%
|
|
|
|
Direct Expenses & Amortization
|
100,614
|
103,421
|
-3%
|
-4%
|
|
Direct Contribution to Profit
|
$104,244
|
$101,044
|
3%
|
2%
|
|
Direct Contribution Margin
|
33.8%
|
33.0%
|
|
|
Revenue:
GEd revenue for fiscal year 2012 increased 1% to $308.4 million, but declined 1% excluding the favorable impact of foreign exchange. The decline reflects lower revenue from print books, partially offset by growth in non-traditional and digital content revenue and other publishing income.
Print Books
Print book revenue for fiscal year 2012 decreased 1% to $208.7 million, or 3% excluding the favorable impact of foreign exchange. The decline was driven by lower enrollments in for-profit institutions due to government scrutiny over recruiting practices, prior year rental stock build-up and lower demand outside the U.S.
Non-Traditional & Digital Content
Non-traditional and digital content revenue, which includes WileyPLUS, eBooks, digital content sold directly to institutions, binder editions and custom publishing, increased 5% to $87.9 million in fiscal year 2012. The growth was principally driven by increased sales of custom textbooks and eBooks, which grew 36% over prior year.
Total GEd Revenue by Region (on a currency neutral basis)
|
·
|
Americas
grew 1% to $222.0 million
|
|
·
|
EMEA
fell 9% to $21.1 million
|
|
·
|
Asia-Pacific
fell 4% to $65.3 million
|
Total GEd Revenue by Major Subject (on a currency neutral basis)
|
·
|
Engineering and Computer Science
fell 1% to $41.8 million
|
|
·
|
Science
grew 3% to $70.1 million
|
|
·
|
Business and Accounting
was flat with the prior year at $84.0 million
|
|
·
|
Social Science
declined 6% to $45.3 million
|
|
·
|
Math
fell 4% to $25.9 million
|
|
·
|
Microsoft Official Academic Couse (MOAC)
decreased 4% to $10.6 million
|
28
Gross Profit:
Gross profit margin for fiscal year 2012 declined 30 basis points to 66.4% principally due to higher composition costs.
Direct Expenses and Amortization:
Direct expenses and amortization for fiscal year 2012 decreased 3% to $100.6 million, or 4% excluding the unfavorable impact of foreign exchange. The decrease was mainly driven by lower employment costs mainly due to accrued incentive compensation ($5 million), partially offset by higher sales and marketing costs ($1 million).
Direct Contribution to Profit:
Direct contribution to profit for fiscal year 2012 increased 3% to $104.2 million, or 2% excluding the favorable impact of foreign exchange. Direct contribution margin improved 80 basis points to 33.8% in fiscal year 2012 mainly driven by lower direct expenses.
Acquisitions and Alliances
|
·
|
An alliance agreement was signed with Blackboard, which will provide instructors and students with direct access to
WileyPLUS
through the Blackboard learning management system. The collaboration will provide a seamless experience between Wiley course materials and the campus environment. In addition, thirty-one institutions are evaluating a new integration for using digital learning content from Wiley with Blackboard Inc.’s learning management system (LMS). The field trial gives students and faculty access to Wiley’s rich collection of learning content and tools directly within their online course environment. The field trial involves students, faculty and campus administrators across 42 courses at two and four-year higher education institutions in the U.S. and Canada. The integration is expected to be fully available globally in summer 2012. In March 2012, the Company signed a new partnership with the National Environmental Health Association (NEHA), MindLeaders, and Prometric to offer Food Safety training and certification. The three partners are leaders in their fields: NEHA is a 70-year old association of health departments, concentrating on the inspection of restaurants and foodservice operations in the area of food safety; MindLeaders is a global e-Learning company; and Prometric is a worldwide leader in testing and certification.
|
|
·
|
Wiley acquired the newsletter National Teaching & Learning Forum (NTLF) and launched two 2012 NTLF issues on Wiley Online Library in March. The NTLF is a subscription fee-based newsletter that serves to “create a sustained and sustaining conversation about teaching and learning.”
|
Wiley Learning Institute
In February, Wiley announced the launch of
Wiley Learning Institute
™ (
www.WileyLearningInstitute.com
), a new service center that provides essential knowledge, ideas, and best practices to promote professional learning for faculty and campus leaders. The online center leverages content, expertise, and resources from across Wiley's global businesses to enable them to excel in their work, fulfill the education mission of their institutions, and provide additional opportunities to enhance teaching and learning.
Wiley Learning Institute
employs the latest technologies to provide participants with interactive workshops, applied learning labs, one-on-one coaching programs, and an online, collaborative community of researchers, thought leaders, and professionals across multiple disciplines.
29
Digital Update
|
·
|
Digital revenue now 16% of Global Education business.
|
|
·
|
Revenue for WileyPLUS fell 2% to approximately $32 million mainly due to a sharp decline in for-profit enrolment.
|
|
·
|
eBook sales grew 36% to approximately $17 million.
|
Shared Services and Administrative Costs
Shared services and administrative costs for fiscal year 2012 increased 4% to $388.0 million, or 3% excluding the unfavorable impact of foreign exchange. The increase mainly reflects higher technology costs, to support investments in digital products and infrastructure ($13 million) and higher employment costs due to new hires and merit increases ($7 million). These increases were partially offset by lower accrued incentive compensation ($6 million), lower distribution costs due to the continued migration from print to digital products ($4 million) and other ($1 million), mainly lower professional fees.
Liquidity and Capital Resources – Fiscal year 2012
The Company’s cash and cash equivalents balance was $259.8 million at the end of fiscal year 2012, compared with $201.9 million a year earlier. Cash provided by operating activities in fiscal year 2012 increased $4.0 million to $379.6 million due primarily to higher net income net of non-cash charges ($35 million), mostly offset by changes in operating assets and liabilities ($24 million) and higher royalty advance payments ($7 million).
Changes in operating assets and liabilities were primarily due to lower accrued expenses ($29 million) principally accrued incentive compensation; lower Deferred Revenue ($13 million) and lower royalties payable ($7 million) due to higher royalty advance payments, partially offset by lower Accounts Receivable ($15 million) due to improved collections and higher income taxes payable ($8 million). The decrease in Deferred Revenue reflects the timing of subscription cash collections primarily due to accelerated collections in the prior year.
Cash used for investing activities for fiscal year 2012 was approximately $212.0 million compared to $113.0 million in fiscal year 2011. The Company invested $92.2 million in the acquisition of publishing businesses, assets and rights compared to $7.2 million in the prior year primarily reflecting the $85 million paid for the Inscape acquisition (See Note 4). This acquisition was funded through the use of the existing credit facility and available cash and did not have an impact on the Company’s ability to meet other operating, investing and financing needs. Cash used for technology, property and equipment increased $12.9 million in fiscal year 2012 versus the prior year mainly reflecting increased investments in technology to support new products and business growth and leasehold improvements on new facilities.
Cash used in financing activities was $104.7 million in fiscal year 2012, as compared to $230.0 million in fiscal year 2011. The Company’s net debt (debt less cash and cash equivalents) decreased $37.2 million from the prior fiscal year end. During fiscal year 2012, net borrowings were $20.8 million compared to net payments of $194.8 million in the prior year period. In fiscal 2012, cash was used primarily to fund the Inscape acquisition, repurchase treasury shares and pay dividends to shareholders, partially offset by proceeds on stock option exercises. In fiscal year 2012, the Company repurchased 1,864,700 shares at an average price of $46.69 compared to 577,405 shares at an average price of $48.42 in the prior year. The Company increased its quarterly dividend to shareholders by 25% to $0.20 per share in fiscal year 2012 from $0.16 per share in the prior year. Proceeds from stock option exercises decreased $12.5 million to $15.3 million in fiscal 2012.
30
On November 2, 2011, the Company amended and restated its existing credit facility with Bank of America - Merrill Lynch and The Royal Bank of Scotland plc as joint lead arrangers and Bank of America as administrative agent. The new agreement consists of a $700 million five-year senior revolving credit facility, which can be drawn in multiple currencies. The proceeds of the new revolving credit facility were used to pay down the Company’s prior credit facility and meet seasonal operating cash requirements. The Company also has the option to request a credit limit increase of up to $250 million in minimum increments of $50 million, subject to the approval of the lenders. The amended credit agreement contains certain restrictive covenants related to the Company’s consolidated leverage ratio and interest coverage ratio. Due to the fact that there are no principal payments due until the end of the amended agreement in fiscal year 2017, the Company has classified its entire debt obligation as long-term as of April 30, 2012. See Note 12 for further discussion of the debt arrangement.
The aggregate notional amount of interest rate swap agreements associated with the Term Loan and Revolving Credit Facility were $375.0 million as of April 30, 2012. It is management's intention that the notional amount of the interest rate swap be less than the Term Loan and Revolving Credit Facility outstanding during the life of the derivatives.
The Company’s operating cash flow is affected by the seasonality and timing of receipts from its STMS journal subscriptions and its Global Education business. Cash receipts for calendar year STMS subscription journals occur primarily from November through March. Reference is made to the Credit Risk section, which follows, for a description of the impact on the Company as it relates to independent journal agents’ financial position and liquidity. Sales primarily in the U.S. higher education market tend to be concentrated in June through August, and again in November through January. Due to this seasonality, the Company normally requires increased funds for working capital from May through September.
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. Cash and Cash Equivalents held outside the U.S. were approximately $253.7 million as of April 30, 2012. The balances were comprised primarily of Euros, Pound Sterling, and Australian dollars. Maintenance of these non-U.S. dollar cash balances does not have a material impact on the liquidity or capital resources of the Company.
As of April 30, 2012, the Company had approximately $475.0 million of debt outstanding and approximately $235 million of unused borrowing capacity under the Revolving Credit Facility which is described in Note 12 and matures on November 2, 2016. We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable to us or at all.
The primary driver of the negative working capital is unearned deferred revenue related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by the Company for a number of purposes including acquisitions; debt repayments; funding operations; dividends payments; and purchasing treasury shares. The deferred revenue will be recognized in 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, 2012 include $342.0 million of such deferred subscription revenue for which cash was collected in advance.
Projected capital spending for Technology, Property and Equipment and Composition for fiscal year 2013 is forecast to be approximately $85 million and $55 million, respectively, primarily to create new and enhance existing digital products and system functionality that will drive future business growth. Projected spending for author advances, which is classified as an operating activity, for fiscal year 2013 is forecast to be approximately $110 million.
31
As part of its routine tax audit process, the German tax authorities notified the Company in May 2012, they are challenging the Company’s tax position which is further discussed in Note 19. The Company’s management and its advisors believe that it is “more likely than not” to successfully defend that the tax treatment was proper and in accordance with German tax regulations. Under German tax law a company must pay all the tax contested and the related interest to have the right to defend a position challenged by authorities. As such, in June 2012, Wiley made a 24 million euro deposit with the German Government. The Company expects to deposit an estimated additional 33 million euros plus interest in future periods until the issue is resolved. The circumstances are not unique to Wiley.
Fiscal Year 2011 Summary Results
Revenue and Gross Profit:
Revenue for fiscal year 2011 increased 3% to $1,742.6 million, or 4% excluding the unfavorable impact of foreign exchange. The increase was driven by growth in all three businesses, led by strong growth in Global Education (“GEd”).
Gross profit margin for fiscal year 2011 of 69.1% was 0.5% higher than prior year. The increase was driven by lower journal production costs due to off-shoring (30 basis points) and increased sales of higher margin digital products (20 basis points), including a digital backlist book license with a university consortium in Saudi Arabia.
Operating and Administrative Expenses:
Operating and administrative expenses for fiscal year 2011 of $910.8 million were 4% higher than prior year, or 5% excluding the favorable impact of foreign exchange. The increase was primarily driven by higher technology costs ($15 million) reflecting ongoing investments in digital products and infrastructure, such as WileyPLUS, eBooks, customer data/relationship management initiatives, and Wiley Online Library; higher employment costs ($8 million) due to merit increases and retirement benefits; higher journal editorial costs ($7 million); higher warehouse rent and facility costs ($6 million) and travel expenses ($3 million) to support business expansion, partially offset by lower journal distribution costs due to off-shoring and outsourcing ($3 million).
In fiscal year 2011, the Company recorded a $9.3 million bad debt provision ($0.10 per share) within the Professional/Trade reporting segment related to the Company’s customer, Borders Group, Inc. (“Borders”). The provision represented the Company’s outstanding receivable with Borders, net of existing reserves and expected recoveries. Borders was projected to account for 5% of fiscal year 2011 P/T sales. There were no additional charges or bad debt expense with respect to this customer.
In fiscal year 2010, the Company recognized impairment and restructuring charges of $15.1 million ($0.17 per share) within the STMS reporting segment. The charges include an $11.5 million impairment charge for GIT Verlag, a business-to-business German-language controlled circulation magazine business; a $1.6 million restructuring charge for severance-related costs to reduce certain staff levels and the number of magazines published by GIT Verlag; an impairment charge of $0.9 million for three smaller business-to-business controlled circulation advertising magazines; and a $1.1 million restructuring charge for severance costs related to the off-shoring of certain central marketing and content management activities to Singapore and other countries in Asia.
32
Operating Income:
Operating income for fiscal year 2011 increased 2% to $248.1 million, or 8% on a currency neutral basis. Excluding the impact of the Borders bad debt provision ($9.3 million) and the prior year impairment and restructuring charges ($15.1 million), operating income increased 6% on a currency neutral basis. Higher revenue and higher gross profit margins were partially offset by higher operating and administrative expenses to support business growth.
Interest Expense/Income, Foreign Exchange and Other:
Interest expense for fiscal year 2011 decreased $15.0 million to $17.3 million. Lower interest rates and lower average debt contributed approximately $10.0 million and $5.0 million to the decrease, respectively. Losses on foreign currency transactions for fiscal years 2011 and 2010 were $2.2 million and $10.9 million, respectively. The foreign currency transaction loss in fiscal year 2010 was principally due to the revaluation of U.S. dollar cash balances held by the Company’s non-U.S. locations into the local currency of those operations. Interest income and other increased $1.6 million from the prior year, reflecting interest earned on higher average cash balances.
Provision for Income Taxes:
The effective tax rate for fiscal year 2011 was 25.6% compared to 28.3% in the prior year. During fiscal year 2011, the Company recorded a $4.2 million ($0.07 per share) non-cash deferred tax benefit associated with new tax legislation enacted in the United Kingdom (“U.K.”) that reduced the U.K. statutory income tax rate from 28% to 27%. The new tax rate was effective as of April 1, 2011. The benefit recognized by the Company reflected the restatement of all applicable U.K. deferred tax balances to the new income tax rate. In fiscal year 2011, the Company also recognized state net operating loss benefits of approximately $1.9 million ($0.03 per share). The Company’s effective tax rate for fiscal year 2011 excluding the tax benefits described above was 28.3%.
Earnings Per Share:
Earnings per diluted share for fiscal years 2011 and 2010 were $2.80 and $2.41, respectively. Excluding the effects of unfavorable foreign exchange transaction and translation losses ($0.07 per share), the current year Borders bad debt provision ($0.10 per share), the prior year impairment and restructuring charges ($0.17 per share) and the fiscal year 2011 deferred tax benefit associated with the change in U.K. corporate income tax rates ($0.07 per share), earnings per diluted share increased 12% on higher shares outstanding. The dilutive effect of higher shares outstanding in fiscal year 2011 was approximately $0.08 per share as compared to the prior year.
33
Fiscal Year 2011 Segment Results
|
Scientific, Technical, Medical and Scholarly (STMS):
|
||||
|
% change
|
||||
|
Dollars in thousands
|
2011
|
2010
|
% change
|
w/o FX (a)
|
|
Journal Subscriptions
|
$621,551
|
$621,257
|
0%
|
4%
|
|
Books
|
175,611
|
163,349
|
8%
|
8%
|
|
Other Publishing Income
|
201,740
|
202,077
|
0
%
|
1%
|
|
Total Revenue
|
$998,902
|
$986,683
|
1%
|
4%
|
|
Gross Profit
|
729,931
|
716,470
|
2%
|
5%
|
|
Gross Profit Margin
|
73.1%
|
72.6%
|
|
|
|
Direct Expenses & Amortization
|
305,134
|
311,229
|
-2%
|
5%
|
|
Direct Contribution to Profit
|
$424,797
|
$405,241
|
5%
|
5%
|
|
Direct Contribution Margin
|
42.5%
|
41.1%
|
|
|
|
(a)
|
Adjusted to exclude a fiscal year 2010 impairment and restructuring charges of $15.1 million from direct expenses and direct contribution.
|
Revenue:
STMS revenue for fiscal year 2011 increased 1% to $998.9 million, or 4% excluding the unfavorable impact of foreign exchange. On a currency neutral basis, the growth was driven by higher journal subscription and book revenue, while other publishing income increased slightly from prior year.
Journal Subscriptions
Journal subscription revenue for fiscal year 2011 of $621.6 million was flat with the prior year, but increased 4% excluding the unfavorable impact of foreign exchange. On a currency neutral basis, the growth was driven by an increase in journal subscriptions ($18 million), new journal society business ($3 million) and the timing of journal publications ($3 million). As of April 30, 2011, receipts for calendar year 2011 journal subscriptions grew approximately 3% over calendar year 2010 with approximately 95% of expected calendar year 2011 subscription receipts received.
Books
Books revenue for fiscal year 2011 increased 8% to $175.6 million. The growth mainly reflects higher digital ($12 million) and print ($2 million) book sales. The increase in digital book revenue includes a $5 million online book license with a consortium in Saudi Arabia.
Other Publishing Income
Other publishing income for fiscal year 2011 of $201.7 million was flat with the prior year, but grew 1% excluding the unfavorable impact of foreign exchange as an increase in backfile revenue ($4 million) was partially offset by a decline in journal reprint revenue ($3 million).
Gross Profit:
Gross profit margin for fiscal year 2011 of 73.1% was 0.5% higher than the prior year. The improvement was mainly driven by lower journal production costs due to off-shoring and outsourcing.
34
Direct Expenses and Amortization:
Direct expenses and amortization for fiscal year 2011 decreased 2% to $305.1 million. On a currency neutral basis and excluding the $15.1 million asset impairment and restructuring charges recorded in fiscal year 2010, direct expenses and amortization increased 5%. The increase primarily reflects higher journal editorial costs to support business growth ($9 million) and higher employment costs ($2 million).
Direct Contribution to Profit:
Direct contribution to profit increased 5% to $424.8 million in fiscal year 2011, or 9% excluding the unfavorable impact of foreign exchange. Excluding foreign exchange and the prior year asset impairment and restructuring charges, direct contribution to profit increased 5%. Increased revenue and higher gross profit margins were partially offset by an increase in direct expenses as described above. Direct contribution margin improved 140 basis points to 42.5% in fiscal year 2011, or 40 basis points on a currency neutral basis and excluding the prior year asset impairment and restructuring charges principally due to improved gross profit margins.
Full Year Digital Revenue
|
·
|
Digital revenue was 59% of total STMS revenue
|
|
·
|
Digital journal revenue was 81% of total journal revenue, up from 79% a year earlier
|
|
·
|
Digital book revenue was up 74% and accounted for 16% of total book sales
|
Wiley Online Library
Wiley Online Library
, one of the world’s broadest and deepest multidisciplinary collection of online resources covering life, health and physical sciences, social science and the humanities, was launched in August 2010. Built on the new technology and designed with extensive input from scholars around the world,
Wiley Online Library
now provides access to over 5 million articles from 1,600 journals, 12,000 books, and hundreds of reference works, laboratory protocols and databases. Key attributes:
|
·
|
New revenue opportunities, including new applications and business models, online advertising, deeper penetration into markets, enhanced discoverability, and individual sales/pay-per-view
|
|
·
|
An easy-to-use interface providing intuitive navigation and fast access to online content
|
|
·
|
Research tools to enable the discovery of available resources and help pinpoint information
|
|
·
|
Personalization options to keep up-to-date on the latest research with content alerts and RSS feeds and the ability to store key publications and articles for future reference
|
|
·
|
Customizable product home pages that allow journal and society communities to highlight key features and share news and information
|
|
·
|
Access icons that identify the content available to customers through institutional licenses, society membership and author-funded
Online Open
publication, as well as freely available content
|
Society Partnerships
|
·
|
37 new society journals were signed with combined annual revenue of approximately $9 million
|
|
·
|
100 renewals/extensions with approximately $56 million in combined annual revenue
|
|
·
|
4 journals were not renewed in fiscal year 2011, totalling approximately $1 million in annual revenue.
|
Alliances
|
·
|
An agreement to co-publish a new book series on neuroendocrinology was signed with the International Neuroendocrine Federation
|
35
|
·
|
An agreement signed with GeneBio for us to distribute their SmileMS mass spectrometry software which is used to identify small molecules.
|
|
·
|
A publishing agreement was signed for a joint venture with the Society of Chemical Industry (SCI) to launch a new electronic journal entitled
Greenhouse Gases: Science and Technology
.
|
|
·
|
A partnership with the Association of American Geographers to publish a definitive reference work for the discipline to be published online and in 15 print volumes.
|
|
·
|
Wiley purchased the remaining 50% of the
Journal for the Theory of Social Behaviour
, which publishes original theoretical and methodological articles that examine the links between social structures and human agency embedded in behavioral practices. The journal is accessible to readers worldwide in the fields of psychology, sociology and philosophy.
|
New Society Journals
|
·
|
Eleven journals on behalf of the
British Psychological Society (BPS). The BPS is the second largest psychological society in the world with approximately 50,000 members.
|
|
·
|
Acta Obstetricia et Gynecologica
,
on behalf of the Nordisk Förening för Obstetrik och Gynekologi (NFOG), the Nordic Federation of Societies of Obstetrics and Gynaecology
|
|
·
|
Journal of the European Economic Association
, on behalf of the European Economic Association (EEA). The EEA is the third highest profile economic society in the world.
|
|
·
|
Three journals (
Journal of Wildlife Management, Wildlife Monographs
and the forthcoming re-launch of the
Wildlife Society Bulletin
) on behalf of The Wildlife Society
|
|
·
|
Journal of Midwifery and Women's Health
with the American College of Nurse Midwives
|
|
·
|
International Journal of Language and Communication Disorders
on behalf of
the Royal College of Speech and Language Therapists, providing Wiley with a strong foundation in the field, opening opportunities to add content and relationships
|
|
·
|
International Forum of Allergy &
Rhinology
for the American Rhinologic Society and the American Academy of Otolaryngic Allergy
|
|
·
|
Biotechnology and Applied Biochemistry
on behalf of the International Union of Biochemistry and Molecular Biology
|
|
·
|
European Management Review
with the
European Academy of Management
|
|
·
|
Structural Concrete
with the International Federation for Structural Concrete
|
|
·
|
The ten journals of the American Counseling Association. The ACA is the world’s leading association for professionals in Counseling.
|
|
·
|
International Dental Journal
,
for the FDI World Dental Federation.
|
|
·
|
Journal of Business Logistics
,
for the Council of Supply Chain Management Professionals (CSCMP).
|
|
·
|
International Journal of Paediatric Obesity
,
for the International Association for the Study of Obesity.
|
|
·
|
Journal of Creative Behavior
,
for the Creative Education Foundation (CEF. Founded in 1954, the CEF is recognized as the world leader in Applied Imagination
|
|
·
|
Asia Pacific Journal of Human Resources
, for the Australian Human Resources Institute (AHRI).
APJHR
is the leading journal for HR professionals in Australia.
|
Journal Quality and Impact Factors
Wiley announced that two thirds of its journals (68.8% and 1,013 titles) have an Impact Factor according to the revised Thomson ISI® 2009 Journal Citation Reports (JCR) released in September 2010. Impact Factor is a leading evaluator of journal influence and impact, as it reflects the frequency that peer-reviewed journals are cited by researchers. Nearly a quarter of Wiley’s ranked journals are in the top ten of their subject category (238 titles) while two thirds are in the top half of their category. Wiley has 37 number 1 rankings. These titles represent the highest proportion of listed journals receiving the top rank of all the major journals publishers (those publishing 100 or more titles listed in the JCR).
36
|
Professional/Trade (P/T):
|
||||
|
% change
|
||||
|
Dollars in thousands
|
2011
|
2010
|
% change
|
w/o FX (a)
|
|
Books
|
$387,228
|
$379,934
|
2%
|
2%
|
|
Other Publishing Income
|
49,860
|
50,054
|
0%
|
0%
|
|
Total Revenue
|
$437,088
|
$429,988
|
2%
|
1%
|
|
Gross Profit
|
269,112
|
263,552
|
2%
|
2%
|
|
Gross Profit Margin
|
61.6%
|
61.3%
|
|
|
|
Direct Expenses & Amortization
|
173,616
|
163,356
|
6%
|
1%
|
|
Direct Contribution to Profit
|
$95,496
|
$100,196
|
-5%
|
5%
|
|
Direct Contribution Margin
|
21.8%
|
23.3%
|
|
|
|
(a)
|
Adjusted to exclude fiscal year 2011 bad debt provision of $9.3 million related to Borders from direct expenses and direct contribution.
|
Revenue:
P/T revenue for fiscal year 2011 increased 2% to $437.0 million, or 1% excluding the favorable impact of foreign exchange. Book revenue increased 2% to $387.2 million, while other publishing income of $49.9 million was flat with the prior year. The book revenue growth was driven by higher business/finance ($13 million) and professional education ($4 million) sales, partially offset by a decline in consumer sales ($9 million) mainly due to the Borders disruption. Other publishing income, which includes the sale of publishing rights, advertising income, subscription journals and online services, was flat to prior year.
Total P/T Revenue by Category (on a currency neutral basis)
|
·
|
Business grew 10%, reflecting growth in digital sales
|
|
·
|
Consumer fell 6% due in large part to the Borders disruption
|
|
·
|
Technology, which maintained its #1 market position, was flat with the prior year
|
|
·
|
Professional Education grew 16% to $8 million, fueled by Doug Lemov’s best seller Teach like a Champion
|
|
·
|
Architecture, yet to rebound from the recession, was down 3%
|
|
·
|
Psychology was up 2%
|
Gross Profit:
Gross profit margin for fiscal year 2011 of 61.6% was 0.3% higher than the prior year. The improvement was driven by lower inventory obsolescence provisions reflecting improved inventory management and higher eBook sales.
Direct Expenses and Amortization:
Direct expenses and amortization for fiscal year 2011 increased 6% to $173.6 million, or 1% excluding the $9.3 million Borders bad debt provision and foreign exchange.
37
Direct Contribution to Profit:
Direct contribution to profit for fiscal year 2011 decreased 5% to $95.5 million, or 7% excluding unfavorable foreign exchange. Excluding the $9.3 million Borders bad debt provision and foreign exchange, direct contribution to profit increased 5%. The improvement reflects the top-line results and higher gross profit margins. Direct contribution margin declined 150 basis points to 21.8% due to the Borders bad debt provision, partially offset by higher gross profit margins from increased digital revenue.
Digital Revenue
|
·
|
Digital revenue for fiscal year 2011 was 10% of total P/T revenue, up from 7% in the prior year. Digital revenue includes ebooks, online advertising, and content licensing.
|
|
·
|
eBook sales reached $23 million for fiscal year 2011, or 5% of total P/T revenue.
|
Alliances
|
·
|
A partnership with RSMeans, a division of Reed Construction Group, to become their exclusive publisher and distributor of professional reference titles. In addition to managing their current reference collection, Wiley and RSMeans will launch a branded series of new reference titles over the next several years, primarily targeting the commercial and residential construction markets, in both print and digital formats.
|
|
·
|
A partnership with the Tax institute at H&R Block to create exam prep product for the new Tax Preparer certification from the IRS. The program will have books/eBooks and online test bank – eventually adding a continuing professional education component.
|
|
·
|
A partnership with the AARP to become its exclusive book publisher. The agreement will include cobranded publishing across a variety of categories, including health, personal finance, cooking, travel, and technology. The AARP has nearly 40 million members and a target audience of adults aged 50+.
|
|
·
|
A partnership with Element K (acquired by Skillsoft Corporation in fiscal year 2012), a learning solutions and online training company in the field of IT, to produce For Dummies “E-Learning” courses. The first product launched in fiscal year 2012.
|
Notable New Books
Business
|
·
|
Little Book of Alternative Investments
by Ben Stein
|
|
·
|
What Makes Business Rock
,
by former MTV Networks CEO Bill Roedy
|
|
·
|
Endgame
by John Mauldin
|
|
·
|
Debunkery
by Ken Fisher
|
|
·
|
The Truth About Leadership
by Jim Kouzes and Barry Posner
|
|
·
|
Business Model Generation: A Handbook for Visionaries, Game-Changers and Challengers
by Alexander Osterwalder
|
Professional Education
|
·
|
Falling Upward: A Spirituality for the Two Halves of Life
by Richard Rohr
|
Consumer
|
·
|
Betty Crocker
Big Book of Cupcakes
|
|
·
|
Unofficial Guide to Walt Disney World
Ebook
|
|
·
|
Frommers Day by Day guides for
Greece, Germany, California and Alaska
|
|
·
|
Facebook For Dummies, 3e
, Book + DVD Bundle by Leah Pearlman and Carolyn Abram
|
|
·
|
Better Homes & Gardens New Cook Book 15
th
Edition (Consumer - Cooking)
|
|
·
|
Avec Eric
by Eric Ripert
|
|
·
|
ASVAB For Dummies, 3e
and
ASVAB For Dummies
,
Premier Edition
by Rod Powers
|
38
Technology
|
·
|
iPad For Dummies, 2nd Edition
by Ed Baig and Bob Levitus
|
|
·
|
CCNA: Cisco Certified Network Associate Study Guide
by Todd Lammle
|
|
·
|
Microsoft Data Warehouse Toolkit, 2E
by Joy Mundy, Warren Thornthwaite, with Ralph Kimball
|
|
·
|
Digital SLR Photography All-in-One
by David D. Busch
|
|
·
|
iPad All-in-One For Dummies
by Nancy Muir
|
Psychology
|
·
|
Disorders of Personality
by
Theodore Millon
|
|
·
|
Handbook of Social Psychology eMRW
|
Architecture
|
·
|
A Global History of Architecture, 2 e
by Frank Ching
|
|
Global Education (GEd):
|
||||
|
% change
|
||||
|
Dollars in thousands
|
2011
|
2010
|
% change
|
w/o FX
|
|
Print Books
|
$211,611
|
$205,326
|
3%
|
1%
|
|
Non-Traditional & Digital Content
|
83,789
|
66,574
|
26%
|
26%
|
|
Other Publishing Income
|
11,161
|
10,491
|
6%
|
3%
|
|
Total Revenue
|
$306,561
|
$282,391
|
9%
|
7%
|
|
Gross Profit
|
204,465
|
185,039
|
11%
|
9%
|
|
Gross Profit Margin
|
66.7%
|
65.5%
|
|
|
|
Direct Expenses & Amortization
|
103,421
|
98,827
|
5%
|
3%
|
|
Direct Contribution to Profit
|
$101,044
|
$86,212
|
17%
|
15%
|
|
Direct Contribution Margin
|
33.0%
|
30.5%
|
|
|
Revenue
GEd revenue for fiscal year 2011 increased 9% to $306.6 million, or 7% excluding the favorable impact of foreign exchange. The improvement was driven by strong growth in Non-Traditional and Digital Content and Print Book revenue.
Print Books
Print book revenue for fiscal year 2011 increased 3% to $211.6 million, or 1% excluding the favorable impact of foreign exchange. The improvement was driven by increased student enrollment, a strong front list in the engineering/computer science and science categories and increased sales of
Windows 7
server titles.
Non-Traditional & Digital Content
Non-traditional & digital content revenue, which includes
WileyPLUS
, eBooks, digital content sold directly to institutions, binder editions and custom publishing, increased 26% to $83.8 million. The growth was driven by digital book sales ($6 million), custom publishing ($4 million),
WileyPLUS
($3 million) and increased sales of other non-traditional content ($3 million).
WileyPLUS
revenue increased 11% to approximately $33 million. Revenue from non-traditional and digital content represents approximately 27% of total GEd revenue, as compared to 24% in the prior year.
39
Other Publishing Income
Other publishing income for fiscal year 2011 increased 6% to $11.2 million, or 3% excluding the favorable impact of foreign exchange mainly due to higher revenue from the sale of translation rights.
Total GEd Revenue by Region (on a currency neutral basis)
|
·
|
Americas
grew
8% to
$216.2 million
|
|
·
|
EMEA
grew 7% to $24.6 million
|
|
·
|
Asia-Pacific
grew 1% to $65.8 million
|
Total GEd Revenue by Subject (on a currency neutral basis)
|
·
|
Engineering and Computer Science:
revenue increased 21%. Textbooks driving growth include Callister:
Materials Science 8e,
Rainer:
Introduction to Information Systems 3e
, Moran:
Thermodynamics 7e
, Montgomery:
Applied Statistics 5e,
and Horstmann:
Big Java 4e
and
Java for Everyone 1e.
|
|
·
|
Science
: revenue grew 14%. Textbooks driving growth included Halliday:
Physics 9e,
Solomons:
Organic Chemistry 10e,
Grosvenor:
Visualizing Nutrition 1e
and Hein:
Chemistry 13e
.
|
|
·
|
Business and Accounting
: revenue was flat with the prior year
|
|
·
|
Social Science and Culinary
: revenue increased 1% from prior year
|
|
·
|
Mathematics:
increased 5% over prior year
|
|
·
|
Microsoft Official Academic Course:
revenue grew 6%, reflecting growth in the Windows Server books.
|
Gross Profit
Gross profit margin for fiscal year 2011 of 66.7% was 120 basis points higher than prior year. The improvement was driven by increased sales of digital products (90 basis points) and lower inventory obsolescence provisions (30 basis points).
Direct Expenses and Amortization
Direct expenses and amortization for fiscal year 2011 increased 5% to $103.4 million, or 3% excluding the unfavorable impact of foreign exchange. The increase was mainly driven by higher employment costs ($4 million).
Direct Contribution to Profit
Direct contribution to profit for fiscal year 2011 increased 17% to $101.0 million, or 15% excluding the favorable impact of foreign exchange. The growth was driven by the top-line results and higher gross profit margins, partially offset by an increase in direct expenses as described above. Direct contribution margin improved 250 basis points to 33.0%, principally due to improved gross profit margins on higher digital revenue.
Digital Products
|
·
|
Digital revenue accounted for 16% of Global Education business, up from 13% in fiscal year 2010.
|
|
·
|
Fiscal year 2011 revenue of
WileyPLUS
grew 12% to $33 million, accounting for 11% of total Global Education revenue.
WileyPLUS
is an online teaching and learning environment that integrates the entire digital textbook with the most effective instructor and student resources to fit every learning style.
|
|
·
|
WileyPLUS
digital-only revenue (not packaged with a print textbook) grew 18% to $13 million for the 2011 fiscal year, and represented approximately 40% of total
WileyPLUS
revenue.
|
|
·
|
In the U.S., student validation rates for
WileyPLUS
increased to 78% from approximately 73% in fiscal year 2010.
|
|
·
|
eBook revenue grew to $13 million in fiscal year 2011.
|
40
Shared Services and Administrative Costs
Shared services and administrative costs for fiscal year 2011 increased 7% to $373.2 million, including and excluding the impact of foreign exchange. The increase was driven primarily by higher Technology costs ($23 million) reflecting ongoing investments in digital products and infrastructure, such as
WileyPLUS
, eBooks, customer data/relationship management initiatives, and
Wiley Online Library
; Distribution costs due to higher warehouse facility ($4 million) and employment costs ($2 million), partially offset by lower costs due to off-shoring ($3 million); In addition, Finance and Other Administrative costs reflect lower employment costs mainly due to lower accrued incentive compensation ($5 million) partially offset by increased legal and professional fees ($2 million).
Liquidity and Capital Resources – Fiscal year 2011
The Company’s cash and cash equivalents balance was $201.9 million at the end of fiscal year 2011, compared with $153.5 million a year earlier. Cash provided by operating activities in fiscal year 2011 increased $60.6 million to $375.6 million due primarily to higher net income ($28 million), lower pension contributions ($23 million), and lower changes in operating assets and liabilities ($16 million), partially offset by other ($6 million). Pension contributions in fiscal year 2011 were $24.8 million compared to $48.1 in the prior year, of which none were discretionary in fiscal year 2011, while $31.0 million were discretionary with respect to timing in the prior year.
Changes in operating assets and liabilities were principally due to the timing of vendor payments ($28 million), higher earned royalty advances ($12 million) higher Deferred Revenue ($10 million), partially offset by higher incentive compensation payments ($17 million). The increase in Deferred Revenue reflects journal subscription growth and the timing of subscription cash collections.
Cash used for investing activities for fiscal year 2011 was approximately $113.0 million compared to $106.1 million in fiscal year 2010. The Company invested $7.1 million in the acquisition of publishing businesses, assets and rights compared to $6.4 million in the prior year. Cash used for property, equipment and technology and product development increased $6.2 million in fiscal year 2011 versus the prior year mainly reflecting increased spending on leasehold improvements and fixtures related to newly leased facilities.
Cash used in financing activities was $230.0 million in fiscal year 2011, as compared to $156.4 million in fiscal year 2010. In fiscal 2011, cash was used primarily to repay debt, pay dividends to shareholder and to repurchase treasury shares. In fiscal year 2011, the Company repurchased 577,405 shares at an average price of $48.42. In fiscal 2010, the Company did not repurchase any treasury shares in the prior period. The Company increased its quarterly dividend to shareholders by 14.3% to $0.16 per share in fiscal year 2011 from $0.14 per share in the prior year. Proceeds from stock option exercises decreased $4.9 million to $27.8 million in fiscal 2011.
The aggregate notional amount of interest rate swap agreements associated with the Term Loan and Revolving Credit Facility were $125.0 million as of April 30, 2011. It is management's intention that the notional amount of the interest rate swap be less than the Term Loan and Revolving Credit Facility outstanding during the life of the derivative.
41
The Company’s operating cash flow is affected by the seasonality and timing of receipts from its STMS journal subscriptions and its Global Education business. Cash receipts for calendar year STMS subscription journals occur primarily from November through March. Reference is made to the Credit Risk section, which follows, for a description of the impact on the Company as it relates to independent journal agents’ financial position and liquidity. Sales primarily in the U.S. higher education market tend to be concentrated in June through August, and again in November through January. Due to this seasonality, the Company normally requires increased funds for working capital from May through September.
Cash and Cash Equivalents held outside the U.S. were approximately $192.1 million as of April 30, 2011. The balances were comprised primarily of Euros, Pound Sterling, and Australian dollars. Maintenance of these non-U.S. dollar cash balances does not have a material impact on the liquidity or capital resources of the U.S. operations.
As of April 30, 2011, the Company had approximately $454.0 million of debt outstanding and approximately $697.4 million of unused borrowing capacity under the Revolving Credit Facility which is described in Note 12. The Term Loan matures on February 2, 2013 and the Revolver will terminate on February 2, 2012. We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable to us or at all.
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.
Working capital at April 30, 2011 was negative $228.9 million. The primary driver of the negative working capital is unearned deferred revenue related to subscriptions for which cash has been collected in advance. Cash received in advance for subscriptions is used by the Company to fund acquisitions; pay debt; fund operations; purchase treasury share and pay dividends. 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, 2011 include $321.4 million of such deferred subscription revenue for which cash was collected in advance. Total Company cash on-hand in working capital at April 30, 2011 was $201.9 million.
Critical Accounting Policies and Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Management continually evaluates the basis for its estimates. Actual results could differ from those estimates, which could affect the reported results. Note 2 of the “Notes to Consolidated Financial Statements” includes a summary of the significant accounting policies and methods used in preparation of our Consolidated Financial Statements. Set forth below is a discussion of the Company’s more critical accounting policies and methods.
Revenue Recognition:
The Company recognizes revenue when the following criteria are met: persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. If all of the above criteria have been met, revenue is recognized upon shipment of products or when services have been rendered. Subscription revenue is generally collected in advance. The prepayment is deferred and recognized as earned when the related issue is shipped or made available online over the term of the subscription. Collectability is evaluated based on the amount involved, the credit history of the customer, and the status of the customer’s account with the Company.
42
When a product is sold with multiple deliverables, the Company accounts for each deliverable within the arrangement as a separate unit of accounting due to the fact that each deliverable is also sold on a stand-alone basis. The total consideration of a multiple-element arrangement is allocated to each unit of accounting based on the price charged by the Company when it is sold separately. The Company’s multiple deliverable arrangements principally include
WileyPLUS
, the online teaching and learning environment for the Company’s Global Education business which also includes a complete print or digital textbook for the course, as well as negotiated licenses for bundles of electronic content available on
Wiley Online Library
, the online publishing platform for the Company’s STMS business.
When the Company’s electronic content is sold through a third party, the Company is generally not the primary obligor within the arrangement since it typically is not responsible for fulfilling the customer’s order or handling any customer requests or claims. Accordingly, the Company will recognize revenue for the sale of its electronic content through third parties based on the amount billed to the end customer, net of any commission owed to the third party seller of the content. Revenue is also reported net of any amounts billed to customers for taxes which are remitted to government authorities.
Allowance for Doubtful Accounts:
The estimated allowance for doubtful accounts is based on a review of the aging of the accounts receivable balances, historical write-off experience, credit evaluations of customers and current market conditions. A change in the evaluation of a customer’s credit could affect the estimated allowance. The allowance for doubtful accounts is shown as a reduction of Accounts Receivable in the Consolidated Statements of Financial Position and amounted to $6.9 million and $19.6 million as of April 30, 2012 and 2011, respectively. The decrease was primarily due to the write-off of Borders which was provided for in fiscal year 2011 as disclosed in Note 9 of the Consolidated Financial Statements.
Sales Return Reserve:
The estimated allowance for sales returns is based on a review of the historical return patterns, as well as current market trends in the businesses in which we operate. Associated with the estimated sales return reserves, the Company also includes a related reduction in inventory and royalty costs as a result of the expected returns.
Net sales return reserves amounted to $35.8 million and $48.9 million as of April 30, 2012 and 2011, respectively. The reserves are reflected in the following accounts of the Consolidated Statements of Financial Position – increase (decrease):
|
2012
|
2011
|
||
|
Accounts Receivable
|
$(48,612)
|
$(65,664)
|
|
|
Inventory
|
7,246
|
9,485
|
|
|
Accounts and Royalties Payable
|
(5,593)
|
(7,270)
|
|
|
Decrease in Net Assets
|
$(35,773)
|
$(48,909)
|
The decrease in the sales return reserve was principally driven by the Company’s ongoing migration to eBooks and improved ordering patterns and inventory management by the Company’s customers. A one percent change in the estimated sales return rate could affect net income by approximately $3.4 million. A change in the pattern or trends in returns could affect the estimated allowance.
Reserve for Inventory Obsolescence:
Inventories are carried at the lower of cost or market. A reserve for inventory obsolescence is estimated based on a review of damaged, obsolete, or otherwise unsalable inventory. The review encompasses historical unit sales trends by title; current market conditions, including estimates of customer demand compared to the number of units currently on hand; and publication revision cycles. A change in sales trends could affect the estimated reserve. The inventory obsolescence reserve is reported as a reduction of the Inventory balance in the Consolidated Statements of Financial Position and amounted to $33.9 million and $36.9 million as of April 30, 2012 and 2011, respectively.
43
Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities Assumed:
In connection with acquisitions, the Company allocates the cost of the acquisition to the assets acquired and the liabilities assumed based on the estimates of fair value for such items, including goodwill, other intangible assets and technology acquired. 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 assist in the determination of such estimates.
Goodwill and Intangible Assets:
Goodwill is the excess of the purchase price paid over the fair value of the net assets of the business acquired. Intangible assets principally consist of brands, trademarks, content and publication rights, customer relationships and non-compete agreements. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently if events or changes in circumstances indicate the asset might be impaired. The fair values of the Company’s reporting units are substantially in excess of their carrying values. Finite-lived intangible assets are amortized over their estimated useful lives. Content and publication rights, trademarks, customer relationships and brands with finite lives are amortized on a straight-line basis over periods ranging from 5 to 40 years. Non-compete agreements are amortized over the terms of the individual agreement, generally up to 5 years.
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 projected undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value based on the discounted future cash flows.
Share-Based Compensation:
The Company recognizes share-based compensation expense based on the fair value of the share-based awards on the grant date, reduced by an estimate of future forfeited awards. As such, share-based compensation expense is only recognized for those awards that are expected to ultimately vest. The fair value of share-based awards is recognized in net income on a straight-line basis over the requisite service period. The grant date fair value for stock options is estimated using the Black-Scholes option-pricing model. The determination of the assumptions used in the Black-Scholes model requires the Company to make significant judgments and estimates, which include the expected life of an option, the expected volatility of the Company’s Common Stock over the estimated life of the option, a risk-free interest rate and the expected dividend yield. Judgment is also required in estimating the amount of share-based awards that may be forfeited. Share-based compensation expense associated with performance-based stock awards is based on actual financial results for targets established three years in advance. The cumulative effect on current and prior periods of a change in the estimated number of performance share awards, or estimated forfeiture rate, is recognized as an adjustment to earnings in the period of the revision. If actual results differ significantly from estimates, the Company’s share-based compensation expense and results of operations could be impacted.
44
Retirement Plans:
The Company provides defined benefit pension plans for the majority of its employees worldwide. The accounting for benefit plans is highly dependent on assumptions concerning the outcome of future events and circumstances, including compensation increases, long-term return rates on pension plan assets, healthcare cost trends, discount rates and other factors. In determining such assumptions, the Company consults with outside actuaries and other advisors. The discount rates for the U.S. and Canadian pension plans are based on the derivation of a single-equivalent discount rate using a standard spot rate curve and the timing of expected payments as of the balance sheet date. The spot rate curve is based upon a portfolio of Moody’s-rated Aa3 (or higher) corporate bonds. The discount rates for other non-U.S. plans are based on similar published indices with durations comparable to that of each plan’s liabilities. The expected long-term rates of return on pension plan assets are estimated using market benchmarks for equities, real estate and bonds applied to each plan’s target asset allocation and are estimated by asset class including an anticipated inflation rate. The expected long-term rates are then compared to the historic investment performance of the plan assets as well as future expectations and estimated through consultation with investment advisors and actuaries. Salary growth and healthcare cost trend assumptions are based on the Company’s historical experience and future outlook. While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to the defined benefit pension plans of the Company. A hypothetical one percent change in the discount rate would impact net income and the accrued pension liability by approximately $5.5 million and $97.3 million, respectively. A one percent change in the expected long term rate of return would affect net income by approximately $2.5 million.
Recently Issued Accounting Standards:
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products and services separately rather than as a combined unit. Specifically, this guidance amends the existing criteria for separating consideration received in multiple-deliverable arrangements, eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The guidance also establishes a hierarchy for determining the selling price of a deliverable, which is based on vendor-specific objective evidence; third-party evidence; or management estimates. Expanded disclosures related to the Company’s multiple-deliverable revenue arrangements are also required. The new guidance was adopted by the Company for all revenue arrangements entered into or materially modified on and after May 1, 2011 and did not have a significant impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”) which amends U.S. GAAP to provide common fair value measurement and disclosure requirements with International Financial Reporting Standards. The Company does not expect ASU 2011-04 to have a significant effect on its current fair value measurements within the consolidated financial statements, however, the new guidance will result in additional disclosures which will include quantitative information about the unobservable inputs used in all Level 3 fair value measurements. ASU 2011-04 will be effective for the Company as of May 1, 2012.
There have been no other new accounting standards issued that have had, or are expected to have a material impact on the Company’s consolidated financial statements.
45
Contractual Obligations and Commercial Commitments
A summary of contractual obligations and commercial commitments, excluding unrecognized tax benefits further described in Note 11, as of April 30, 2012 is as follows (in thousands):
|
Payments Due by Period
|
|||||
|
Within
|
2-3
|
4-5
|
After 5
|
||
|
Total
|
Year 1
|
Years
|
Years
|
Years
|
|
|
Total Debt
|
$475.0
|
$ -
|
$ -
|
$475.0
|
$ -
|
|
Interest on Debt
1
|
36.8
|
8.7
|
16.3
|
11.8
|
-
|
|
Non-Cancelable Leases
|
242.0
|
38.8
|
71.9
|
67.1
|
64.2
|
|
Minimum Royalty Obligations
|
235.2
|
52.7
|
82.7
|
58.5
|
41.3
|
|
Total
|
$989.0
|
$100.2
|
$170.9
|
$612.4
|
$105.5
|
1
Interest on Debt includes the effect of the Company’s interest rate swap agreements and the estimated future interest payments on the Company’s unhedged variable rate debt, assuming that the interest rates as of April 30, 2012 remain constant until the maturity of the debt.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
The Company is exposed to market risk primarily related to interest rates, foreign exchange, and credit risk. It is the Company’s policy to monitor these exposures and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. The Company does not use derivative financial instruments for trading or speculative purposes.
Interest Rates:
The Company had approximately $475.0 million of variable rate loans outstanding at April 30, 2012, which approximated fair value. On August 19, 2010, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its variable rate loans outstanding. Under the terms of the agreement, the Company pays a fixed rate of 0.8% and receives a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which is reset every month for a twenty-nine month period ending January 19, 2013. As of both April 30, 2012 and 2011, the notional amount of the interest rate swap was $125.0 million.
On March 30, 2012, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its variable rate loans outstanding. Under the terms of the agreement, the Company pays a fixed rate of 0.645% and receives a variable rate of interest based on one month LIBOR (as defined) from the counterparty which is reset every month for a three-year period ending March 31, 2015. As of April 30, 2012, the notional amount of the interest rate swap was $250.0 million.
46
It is management’s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives. During fiscal year 2012, the Company recognized a loss on its hedge contracts of approximately $0.8 million which is reflected in Interest Expense in the Consolidated Statements of Income. At April 30, 2012, the fair value of the outstanding interest rate swap was a net deferred loss of $1.7 million. Based on the maturity dates of the contracts, approximately $0.5 million and $1.2 million of the deferred loss as of April 30, 2012 was recorded in Other Accrued Liabilities and Other Long-Term Liabilities in the Consolidated Statements of Financial Position, respectively. On an annual basis, a hypothetical one percent change in interest rates for the $100.0 million of unhedged variable rate debt as of April 30, 2012 would affect net income and cash flow by approximately $0.6 million.
Foreign Exchange Rates:
Fluctuations in the currencies of countries where the Company operates outside the U.S. may have a significant impact on financial results. The Company is primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain Asian currencies. The Statements of Financial Position of non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted-average exchange rates for revenues and expenses. Fiscal year 2012 revenue was recognized in the following currencies: approximately 54% U.S dollar; 28% British pound sterling; 8% euro and 10% other currencies.
Adjustments resulting from translating assets and liabilities are reported as a separate component of Accumulated Other Comprehensive Loss within Shareholders’ Equity under the caption Foreign Currency Translation Adjustment. The Company also has significant investments in non-U.S. businesses that are exposed to foreign currency risk. During fiscal year 2012, the Company recorded approximately $30.2 million of currency translation losses in other comprehensive income primarily as a result of the strengthening of the U.S. dollar relative to the British pound sterling and euro.
Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in the Consolidated Statements of Income as incurred. Under certain circumstances, the Company may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions, including intercompany purchases and loans. The Company does not use derivative financial instruments for trading or speculative purposes.
The Company may enter into forward exchange contracts to manage the Company’s exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign Exchange Losses on the Consolidated Statements of Income, and carried at their fair value on the Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign Exchange Losses. During fiscal years 2010 through 2012 the Company did not designate any forward exchange contracts as hedges under current accounting standards as the benefits of doing so were not material due to the short-term nature of the contracts. The fair value changes in the forward exchange contracts substantially mitigated the changes in the value of the applicable foreign currency denominated assets and liabilities. The fair values of the contracts were measured on a recurring basis using Level 2 inputs and for fiscal years 2012, 2011 and 2010 the gain/(loss) recognized was $2.4 million, $0.6 million, and ($2.0) million, respectively. As of both April 30, 2012 and 2011, the Company had settled its forward exchange contracts.
Customer Credit Risk:
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to the Company between the months of November and January. 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 24% of total annual consolidated revenue and no one agent accounts for more than 10% of total annual consolidated revenue.
47
The Company’s book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. Although no one book customer accounts for more than 10% of total consolidated revenue and 15% of accounts receivable at April 30, 2012, the top 10 book customers account for approximately 20% of total consolidated revenue and approximately 40% of accounts receivable at April 30, 2012.
The United Kingdom, the United States and Canada have imposed new sanctions following a November 8, 2011 United Nations report targeting Iran, including restrictions on financial transactions; business relationships; and prohibitions on direct and indirect trading with listed “designated persons”. The European Union has also extended its existing sanctions regime. The Company has assessed its business relationship and transactions with Iran and is in compliance with the regulations. As of April 30, 2012, the Company had outstanding trade receivables with Iran of approximately $2.0 million, mainly related to book sales recognized prior to the sanctions. It is unclear at present whether these sanctions will have an effect on the recovery of this outstanding receivable.
“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.
48
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, 2012.
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 fiscal year 2012.
The effectiveness of our internal control over financial reporting as of April 30, 2012 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/ Stephen M. Smith
|
|
|
Stephen M. Smith
|
|
|
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 26, 2012 |
49
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
John Wiley & Sons, Inc.:
We have audited the accompanying consolidated statements of financial position of John Wiley & Sons, Inc. (the “Company”) and subsidiaries as of April 30, 2012 and 2011, 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, 2012. In connection with our audits of the consolidated financial statements, we also have audited Schedule II on Page 81 of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of John Wiley & Sons, Inc. and subsidiaries as of April 30, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), John Wiley & Sons, Inc.’s internal control over financial reporting as of April 30, 2012, 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 26, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
(signed) KPMG LLP
Short Hills, New Jersey
June 26, 2012
50
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
John Wiley & Sons, Inc.:
We have audited John Wiley & Sons, Inc.’s internal control over financial reporting as of April 30, 2012, based on criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). John Wiley & Sons, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, John Wiley & Sons, Inc. maintained, in all material respects, effective internal control over financial reporting as of April 30, 2012, based on criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of John Wiley & Sons, Inc. and subsidiaries as of April 30, 2012 and 2011, 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, 2012, and our report dated June 26, 2012 expressed an unqualified opinion on those consolidated financial statements.
(signed) KPMG LLP
Short Hills, New Jersey
June 26, 2012
51
|
|
||||||||
|
John Wiley & Sons, Inc., and Subsidiaries
|
April 30
|
|||||||
|
Dollars in thousands
|
2012
|
2011
|
||||||
|
Assets:
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 259,830 | $ | 201,853 | ||||
|
Accounts receivable
|
171,561 | 168,310 | ||||||
|
Inventories
|
101,237 | 106,423 | ||||||
|
Prepaid and other
|
41,972 | 50,904 | ||||||
|
Total Current Assets
|
574,600 | 527,490 | ||||||
|
Product Development Assets
|
108,414 | 109,554 | ||||||
|
Technology, Property & Equipment
|
187,979 | 165,541 | ||||||
|
Intangible Assets
|
915,495 | 932,730 | ||||||
|
Goodwill
|
690,619 | 642,898 | ||||||
|
Other Assets
|
55,839 | 51,928 | ||||||
|
Total Assets
|
$ | 2,532,946 | $ | 2,430,141 | ||||
|
Liabilities and Shareholders’ Equity:
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts and royalties payable
|
$ | 151,350 | $ | 155,262 | ||||
|
Deferred revenue
|
342,034 | 321,409 | ||||||
|
Accrued employment costs
|
64,482 | 87,770 | ||||||
|
Accrued income taxes
|
18,812 | 5,924 | ||||||
|
Accrued pension liability
|
3,589 | 4,447 | ||||||
|
Other accrued liabilities
|
60,663 | 57,853 | ||||||
|
Current portion of long-term debt
|
- | 123,700 | ||||||
|
Total Current Liabilities
|
640,930 | 756,365 | ||||||
|
Long-Term Debt
|
475,000 | 330,500 | ||||||
|
Accrued Pension Liability
|
145,815 | 91,594 | ||||||
|
Deferred Income Tax Liabilities
|
181,716 | 192,909 | ||||||
|
Other Long-Term Liabilities
|
71,917 | 80,884 | ||||||
|
Shareholders’ Equity
|
||||||||
|
Preferred Stock, $1 par value: Authorized - 2 million, Issued - zero
|
- | - | ||||||
|
Class A Common Stock, $1 par value: Authorized - 180 million,
|
||||||||
|
Issued – 69,753,370 and 69,749,275
|
69,753 | 69,749 | ||||||
|
Class B Common Stock, $1 par value: Authorized - 72 million,
|
||||||||
|
Issued – 13,436,892 and 13,440,987
|
13,437 | 13,441 | ||||||
|
Additional paid-in capital
|
271,809 | 247,046 | ||||||
|
Retained earnings
|
1,300,713 | 1,136,224 | ||||||
|
Accumulated other comprehensive loss:
|
||||||||
|
Foreign currency translation adjustment
|
(95,981 | ) | (65,808 | ) | ||||
|
Unamortized retirement costs, net of tax
|
(103,381 | ) | (61,636 | ) | ||||
|
Unrealized loss on interest rate swap, net of tax
|
(1,048 | ) | (297 | ) | ||||
| 1,455,302 | 1,338,719 | |||||||
|
Less Treasury Shares At Cost (Class A – 19,771,896 and 18,577,704;
|
||||||||
|
Class B – 3,902,576 and 3,902,576)
|
(437,734 | ) | (360,830 | ) | ||||
|
Total Shareholders’ Equity
|
1,017,568 | 977,889 | ||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 2,532,946 | $ | 2,430,141 | ||||
|
The accompanying notes are an integral part of the consolidated financial statements.
|
||||||||
52
|
|
||||||||||||
|
John Wiley & Sons, Inc., and Subsidiaries
|
For the years ended April 30
|
|||||||||||
|
Dollars in thousands, except per share data
|
2012
|
2011
|
2010
|
|||||||||
|
Revenue
|
$ | 1,782,742 | $ | 1,742,551 | $ | 1,699,062 | ||||||
|
Costs and Expenses
|
||||||||||||
|
Cost of sales
|
543,396 | 539,043 | 534,001 | |||||||||
|
Operating and administrative expenses
|
922,177 | 910,847 | 872,193 | |||||||||
|
Additional provision for doubtful trade account
|
- | 9,290 | - | |||||||||
|
Impairment and restructuring charges
|
- | - | 15,118 | |||||||||
|
Amortization of intangibles
|
36,750 | 35,223 | 35,158 | |||||||||
|
Total Costs and Expenses
|
1,502,323 | 1,494,403 | 1,456,470 | |||||||||
|
Operating Income
|
280,419 | 248,148 | 242,592 | |||||||||
|
Interest expense
|
(9,038 | ) | (17,322 | ) | (32,334 | ) | ||||||
|
Foreign exchange transaction losses
|
(2,261 | ) | (2,188 | ) | (10,883 | ) | ||||||
|
Interest income and other
|
2,975 | 2,422 | 834 | |||||||||
|
Income Before Taxes
|
272,095 | 231,060 | 200,209 | |||||||||
|
Provision for Income Taxes
|
59,349 | 59,171 | 56,666 | |||||||||
|
Net Income
|
$ | 212,746 | $ | 171,889 | $ | 143,543 | ||||||
|
Earnings Per Share
|
||||||||||||
|
Diluted
|
$ | 3.47 | $ | 2.80 | $ | 2.41 | ||||||
|
Basic
|
3.53 | 2.86 | 2.45 | |||||||||
|
Cash Dividends Per Share
|
||||||||||||
|
Class A Common
|
$ | 0.80 | $ | 0.64 | $ | 0.56 | ||||||
|
Class B Common
|
0.80 | 0.64 | 0.56 | |||||||||
|
Average Shares
|
||||||||||||
|
Diluted
|
61,272 | 61,359 | 59,679 | |||||||||
|
Basic
|
60,184 | 60,160 | 58,498 | |||||||||
|
The accompanying notes are an integral part of the consolidated financial statements.
|
||||||||||||
53
|
|
||||||||||||
|
John Wiley & Sons, Inc., and Subsidiaries
|
For the years ended April 30
|
|||||||||||
|
Dollars in thousands
|
2012
|
2011
|
2010
|
|||||||||
|
Operating Activities
|
||||||||||||
|
Net Income
|
$ | 212,746 | $ | 171,889 | $ | 143,543 | ||||||
|
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||||||
|
Amortization of intangibles
|
36,750 | 35,223 | 35,158 | |||||||||
|
Amortization of composition costs
|
50,944 | 51,421 | 47,440 | |||||||||
|
Depreciation of technology, property and equipment
|
50,397 | 45,862 | 40,281 | |||||||||
|
Provisions, impairment and restructuring charges (net of tax)
|
- | 6,039 | 10,631 | |||||||||
|
Stock-based compensation
|
17,262 | 17,719 | 24,842 | |||||||||
|
Excess tax benefits from stock-based compensation
|
(2,044 | ) | (4,816 | ) | (7,636 | ) | ||||||
|
Reserves for returns, doubtful accounts, and obsolescence
|
(3,736 | ) | 4,449 | 18,916 | ||||||||
|
Deferred tax benefits on U.K. rate changes
|
(8,769 | ) | (4,155 | ) | - | |||||||
|
Deferred income taxes
|
11,799 | 9,862 | 9,481 | |||||||||
|
Foreign exchange transaction losses
|
2,261 | 2,188 | 10,883 | |||||||||
|
Pension expense
|
20,975 | 25,633 | 20,319 | |||||||||
|
Royalty advances
|
(108,716 | ) | (101,702 | ) | (103,783 | ) | ||||||
|
Earned royalty advances
|
100,639 | 93,016 | 80,993 | |||||||||
|
Changes in Operating Assets and Liabilities
|
||||||||||||
|
Source/(Use), excluding acquisitions
|
||||||||||||
|
Accounts receivable
|
9,605 | (5,584 | ) | (9,004 | ) | |||||||
|
Inventories
|
4,467 | 7,453 | 13,960 | |||||||||
|
Accounts and royalties payable
|
540 | 6,425 | (15,585 | ) | ||||||||
|
Deferred revenue
|
19,381 | 32,032 | 21,626 | |||||||||
|
Income taxes payable
|
27,835 | 19,455 | 10,887 | |||||||||
|
Other accrued liabilities
|
(37,076 | ) | (7,810 | ) | 15,908 | |||||||
|
Pension contributions
|
(24,939 | ) | (24,782 | ) | (48,124 | ) | ||||||
|
Other
|
(673 | ) | (4,198 | ) | (5,730 | ) | ||||||
|
Cash Provided by Operating Activities
|
379,648 | 375,619 | 315,006 | |||||||||
|
Investing Activities
|
||||||||||||
|
Composition spending
|
(52,501 | ) | (51,471 | ) | (51,584 | ) | ||||||
|
Additions to technology, property and equipment
|
(67,377 | ) | (54,393 | ) | (48,110 | ) | ||||||
|
Acquisitions, net of cash acquired
|
(92,174 | ) | (7,166 | ) | (6,430 | ) | ||||||
|
Cash Used for Investing Activities
|
(212,052 | ) | (113,030 | ) | (106,124 | ) | ||||||
|
Financing Activities
|
||||||||||||
|
Repayment of long-term debt
|
(888,411 | ) | (504,800 | ) | (951,010 | ) | ||||||
|
Borrowings of long-term debt
|
909,211 | 310,000 | 777,610 | |||||||||
|
Purchase of treasury stock
|
(87,072 | ) | (27,958 | ) | - | |||||||
|
Change in book overdrafts
|
(4,414 | ) | (1,185 | ) | 9,707 | |||||||
|
Cash dividends
|
(48,257 | ) | (38,764 | ) | (32,986 | ) | ||||||
|
Debt financing costs
|
(3,119 | ) | - | - | ||||||||
|
Proceeds from exercise of stock options and other
|
15,303 | 27,847 | 32,625 | |||||||||
|
Excess tax benefits from stock-based compensation
|
2,044 | 4,816 | 7,636 | |||||||||
|
Cash Used for Financing Activities
|
(104,715 | ) | (230,044 | ) | (156,418 | ) | ||||||
|
Effects of Exchange Rate Changes on Cash
|
(4,904 | ) | 15,795 | (1,779 | ) | |||||||
|
Cash and Cash Equivalents
|
||||||||||||
|
Increase for year
|
57,977 | 48,340 | 50,685 | |||||||||
|
Balance at beginning of year
|
201,853 | 153,513 | 102,828 | |||||||||
|
Balance at end of year
|
259,830 | 201,853 | 153,513 | |||||||||
|
Cash Paid During the Year for
|
||||||||||||
|
Interest
|
$ | 7,745 | $ | 19,686 | $ | 33,186 | ||||||
|
Income taxes, net
|
$ | 42,841 | $ | 37,822 | $ | 33,358 | ||||||
|
The accompanying notes are an integral part of the consolidated financial statements.
|
||||||||||||
54
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|||||||
|
AND COMPREHENSIVE INCOME
|
|||||||
|
Common
Stock
Class A
|
Common
Stock
Class B
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated
Other Comp-
rehensive
Income
(Loss)
|
Total
Share-
holder’s
Equity
|
|
|
John Wiley & Sons, Inc., and Subsidiaries
|
|||||||
|
Dollars in thousands
|
|||||||
|
Balance at April 30, 2009
|
$69,644
|
$13,547
|
$164,592
|
$892,542
|
$(368,411)
|
$(258,398)
|
$513,516
|
|
Shares Issued Under Employee Benefit Plans
|
(4,008)
|
5,166
|
1,158
|
||||
|
Exercise of Stock Options, including taxes
|
22,892
|
16,189
|
39,081
|
||||
|
Stock-based compensation expense
|
24,842
|
24,842
|
|||||
|
Class A Common Stock Dividends
|
(27,607)
|
(27,607)
|
|||||
|
Class B Common Stock Dividends
|
(5,379)
|
(5,379)
|
|||||
|
Other
|
62
|
(62)
|
2,530
|
2,530
|
|||
|
Comprehensive Income (Loss):
|
|||||||
|
Net income
|
143,543
|
143,543
|
|||||
|
Foreign currency translation gain
|
60,292
|
60,292
|
|||||
|
Change in unamortized retirement costs, net of a $18,657 tax benefit
|
(38,975)
|
(38,975)
|
|||||
|
Change in unrealized loss on interest rate swap, net of a $5,685 tax provision
|
9,435
|
9,435
|
|||||
|
Total Comprehensive Income
|
174,295
|
||||||
|
Balance at April 30, 2010
|
$69,706
|
$13,485
|
$210,848
|
$1,003,099
|
$(347,056)
|
$(227,646)
|
$722,436
|
|
Shares Issued Under Employee Benefit Plans
|
(3,321)
|
4,524
|
1,203
|
||||
|
Purchase of Treasury Shares
|
(27,958)
|
(27,958)
|
|||||
|
Exercise of Stock Options, including taxes
|
|
21,800
|
9,660
|
31,460
|
|||
|
Stock-based compensation expense
|
17,719
|
17,719
|
|||||
|
Class A Common Stock Dividends
|
(32,648)
|
(32,648)
|
|||||
|
Class B Common Stock Dividends
|
(6,116)
|
(6,116)
|
|||||
|
Other
|
43
|
(44)
|
|
(1)
|
|||
|
Comprehensive Income:
|
|||||||
|
Net income
|
171,889
|
171,889
|
|||||
|
Foreign currency translation gain
|
76,923
|
76,923
|
|||||
|
Change in unamortized retirement costs, net of a $7,490 tax provision
|
19,317
|
19,317
|
|||||
|
Change in unrealized loss on interest rate swap, net of a $2,208 tax provision
|
3,665
|
3,665
|
|||||
|
Total Comprehensive Income
|
271,794
|
||||||
|
Balance at April 30, 2011
|
$69,749
|
$13,441
|
$247,046
|
$1,136,224
|
$(360,830)
|
$(127,741)
|
$977,889
|
|
Shares Issued Under Employee Benefit Plans
|
(1,622)
|
3,042
|
1,420
|
||||
|
Purchase of Treasury Shares
|
(87,072)
|
(87,072)
|
|||||
|
Exercise of Stock Options, including taxes
|
|
9,123
|
7,126
|
16,249
|
|||
|
Stock-based compensation expense
|
17,262
|
17,262
|
|||||
|
Class A Common Stock Dividends
|
(40,627)
|
(40,627)
|
|||||
|
Class B Common Stock Dividends
|
(7,630)
|
(7,630)
|
|||||
|
Other
|
4
|
(4)
|
|
-
|
|||
|
Comprehensive Income (Loss):
|
|||||||
|
Net income
|
212,746
|
212,746
|
|||||
|
Foreign currency translation loss
|
(30,173)
|
(30,173)
|
|||||
|
Change in unamortized retirement costs, net of a $18,643 tax benefit
|
(41,745)
|
(41,745)
|
|||||
|
Change in unrealized loss on interest rate swap, net of a $453 tax benefit
|
(751)
|
(751)
|
|||||
|
Total Comprehensive Income
|
140,077
|
||||||
|
Balance at April 30, 2012
|
$69,753
|
$13,437
|
$271,809
|
$1,300,713
|
$(437,734)
|
$(200,410)
|
$1,017,568
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|||||||
55
Notes to Consolidated Financial Statements
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 provides content and content-enabled digital services to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, reference works, books, database services, and advertising; professional books, subscription products, certification and training services and online applications; and educational content and services. Education content and services includes integrated online teaching and learning resources for undergraduate and graduate students, educators, and lifelong learners worldwide as well as secondary school students in Australia. The Company takes full advantage of its content from all three core businesses in developing and cross-marketing products to its diverse customer base of researchers, professionals, students, and educators. The use of technology enables the Company to make its content efficiently more accessible to its customers around the world. The Company maintains publishing, marketing, and distribution centers in the United States, Canada, Europe, Asia, and Australia.
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 intercompany accounts and transactions have been eliminated in consolidation.
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 as of the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
Book Overdrafts:
Under the Company’s cash management system, a book overdraft balance exists for the Company’s primary disbursement accounts. This overdraft represents uncleared checks in excess of cash balances in individual bank accounts. The Company’s funds are transferred from other existing bank account balances or from lines of credit as needed to fund checks presented for payment. As of April 30, 2012 and April 30, 2011, book overdrafts of $35.6 million and $40.0 million, respectively, were included in Accounts and Royalties Payable in the Consolidated Statements of Financial Position.
Revenue Recognition:
The Company recognizes revenue when the following criteria are met: persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. If all of the above criteria have been met, revenue is recognized upon shipment of products or when services have been rendered. Subscription revenue is generally collected in advance. The prepayment is deferred and recognized as earned when the related issue is shipped or made available online over the term of the subscription. Collectability is evaluated based on the amount involved, the credit history of the customer, and the status of the customer’s account with the Company.
56
When a product is sold with multiple deliverables, the Company accounts for each deliverable within the arrangement as a separate unit of accounting due to the fact that each deliverable is also sold on a stand-alone basis. The total consideration of a multiple-element arrangement is allocated to each unit of accounting based on the price charged by the Company when it is sold separately. The Company’s multiple deliverable arrangements principally include
WileyPLUS
, the online teaching and learning environment for the Company’s Global Education business which also includes a complete print or digital textbook for the course, as well as negotiated licenses for bundles of electronic content available on
Wiley Online Library
, the online publishing platform for the Company’s STMS business.
When the Company’s electronic content is sold through a third party, the Company is generally not the primary obligor within the arrangement since it typically is not responsible for fulfilling the customer’s order or handling any customer requests or claims. Accordingly, the Company will recognize revenue for the sale of its electronic content through third parties based on the amount billed to the end customer, net of any commission owed to the third party seller of the content. Revenue is also reported net of any amounts billed to customers for taxes which are remitted to government authorities.
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, historical write-off experience, credit evaluations of customers and current market conditions. A change in the evaluation of a customer’s credit could affect the estimated allowance. The allowance for doubtful accounts is shown as a reduction of Accounts Receivable in the Consolidated Statements of Financial Position and amounted to $6.9 million and $19.6 million as of April 30, 2012 and 2011, respectively. The decrease was primarily due to the write-off of the Borders accounts receivable which was provided for in fiscal year 2011 as disclosed in Note 9.
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. Associated with the estimated sales return reserves, the Company also includes a related reduction in inventory and royalty costs as a result of the expected returns.
Net sales return reserves amounted to $35.8 million and $48.9 million as of April 30, 2012 and 2011, respectively. The reserves are reflected in the following accounts of the Consolidated Statements of Financial Position – increase (decrease):
|
2012
|
2011
|
||
|
Accounts Receivable
|
$(48,612)
|
$(65,664)
|
|
|
Inventory
|
7,246
|
9,485
|
|
|
Accounts and Royalties Payable
|
(5,593)
|
(7,270)
|
|
|
Decrease in Net Assets
|
$(35,773)
|
$(48,909)
|
57
The decrease in the sales return reserve was principally driven by the Company’s ongoing migration to eBooks, the elimination of the high return Borders account and inventory management by the Company’s customers.
Inventories:
Inventories are carried at the lower of cost or market. U.S. book inventories aggregating $60.7 million and $60.1 million at April 30, 2012 and 2011, respectively, are valued using the last-in, first-out (LIFO) method. All other inventories are valued using the first-in, first-out (FIFO) method.
Reserve for Inventory Obsolescence
: A reserve for inventory obsolescence is estimated based on a review of damaged, obsolete, or otherwise unsalable inventory. The review encompasses historical unit sales trends by title; current market conditions, including estimates of customer demand compared to the number of units currently on hand; and publication revision cycles. The inventory obsolescence reserve is reported as a reduction of the Inventory balance in the Consolidated Statements of Financial Position and amounted to $33.9 million and $36.9 million as of April 30, 2012 and 2011, respectively.
Product Development Assets:
Product development assets consist of composition costs and royalty advances. Costs associated with developing a publication are expensed until the product is determined to be commercially viable. Composition costs represent the costs incurred to bring an edited commercial manuscript to publication, which include typesetting, proofreading, design, illustration costs, and digital formatting. Composition costs are capitalized and are generally amortized on a double-declining basis over their estimated useful lives, ranging from 1 to 3 years. Royalty advances are capitalized and, upon publication, are recovered as royalties earned based on sales of the published works. Royalty advances are reviewed for recoverability and a reserve for loss is maintained, if appropriate.
Shipping and Handling Costs:
Costs incurred for shipping and handling are reflected in the Operating and Administrative Expenses line item in the Consolidated Statements of Income. The Company incurred $50.4 million, $52.5 million and $55.6 million in shipping and handling costs in fiscal years 2012, 2011 and 2010, respectively.
Advertising Expense:
Advertising costs are expensed as incurred. The Company incurred $24.3 million, $27.1 million and $26.0 million in advertising costs in fiscal years 2012, 2011 and 2010, respectively.
Technology, Property and Equipment:
Technology, property and equipment is recorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred.
Technology, property and equipment is depreciated using the straight-line method based upon the following estimated useful lives: Buildings and Leasehold Improvements – the lessor of the estimated useful life of the asset up to 40 years or the duration of the lease; Furniture and Fixtures - 3 to 10 years; Computer Hardware and Software - 3 to 10 years.
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 which is generally 3 to 6 years. Maintenance, training, and upgrade costs that do not result in additional functionality are expensed as incurred.
58
Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities Assumed
: In connection with acquisitions, the Company allocates the cost of the acquisition to the assets acquired and the liabilities assumed based on the estimates of fair value for such items, including goodwill, other intangible assets and technology acquired. Such estimates include discounted estimated cash flows to be generated by those assets and the expected useful lives based on historical experience, current market trends, and synergies to be achieved from the acquisition and the expected tax basis of assets acquired. The Company may use an independent appraiser to assist in the determination of such estimates.
Goodwill and Intangible Assets:
Goodwill is the excess of the purchase price paid over the fair value of the net assets of the business acquired. Intangible assets principally consist of brands, trademarks, content and publication rights, customer relationships and non-compete agreements. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company evaluates the recoverability of indefinite-lived intangible assets by comparing the fair value of the intangible asset to its carrying value.
To evaluate the recoverability of goodwill, the Company uses a two-step impairment test approach at the reporting unit level. In the first step, the estimated fair value of the entire reporting unit is compared to its carrying value including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to determine the charge for goodwill impairment. In the second step, the Company determines an implied fair value of the reporting unit’s goodwill by determining the fair value of the individual assets and liabilities (including any previous unrecognized intangible assets) of the reporting unit other than goodwill. The resulting implied fair value of the goodwill is compared to the carrying amount and an impairment charge is recognized for the difference.
Finite-lived intangible assets are amortized over their estimated useful lives. The most significant factors in determining the estimated life of these intangibles is the history and longevity of the brands, trademarks and content and publication rights acquired, combined with the strength of cash flows. Content and 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. Content and publication rights, trademarks, customer relationships and brands with finite lives are amortized on a straight-line basis over periods ranging from 5 to 40 years. Non-compete agreements are amortized over the terms of the individual agreement, generally up to 5 years.
Intangible assets with finite lives are amortized on a straight line basis over the following weighted average estimated useful lives: acquired publishing rights – 36 years; customer relationships – 20 years; brands and trademarks – 11 years; non-compete agreements – 3 years.
Impairment of Long-Lived Assets: A
ssets with finite lives are only evaluated for impairment upon a significant change in the operating or macroeconomic environment. In these circumstances, if an evaluation of the projected undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value based on the discounted future cash flows.
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, changes in interest rates and anticipated transaction exposures, including intercompany purchases. The Company’s 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 charge to earnings. The Company does not use financial instruments for trading or speculative purposes.
59
Foreign Currency Gains/Losses:
The Company maintains operations in many non-U.S. locations. Assets and liabilities are translated into U.S. dollars using end of period exchange rates and revenues and expense are translated into U.S. dollars using weighted average rates. Foreign currency translation adjustments are accumulated and reported as a separate component of Accumulated Other Comprehensive Loss within Shareholders’ Equity. The Company’s significant investments in non-U.S. businesses are exposed to foreign currency risk. During fiscal year 2012, the Company recorded $30.2 million of foreign currency translation losses primarily due to the strengthening of the U.S. dollar relative to the British pound sterling and euro. Foreign currency transaction gains or losses are recognized in the Consolidated Statements of Income as incurred.
Share-Based Compensation:
The Company recognizes share-based compensation expense based on the fair value of the share-based awards on the grant date, reduced by an estimate for future forfeited awards. As such, share-based compensation expense is only recognized for those awards that are expected to ultimately vest. The fair value of share-based awards is recognized in net income on a straight-line basis over the requisite service period. Share-based compensation expense associated with performance-based stock awards is based on actual financial results for targets established three years in advance. The cumulative effect on current and prior periods of a change in the estimated number of performance share awards, or estimated forfeiture rate, is recognized as an adjustment to earnings in the period of the revision.
Recently Issued Accounting Standards:
In October 2009, the FASB issued ASU 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products and services separately rather than as a combined unit. Specifically, this guidance amends the existing criteria for separating consideration received in multiple-deliverable arrangements, eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The guidance also establishes a hierarchy for determining the selling price of a deliverable, which is based on vendor-specific objective evidence; third-party evidence; or management estimates. Expanded disclosures related to the Company’s multiple-deliverable revenue arrangements are also required. The new guidance was adopted by the Company for all revenue arrangements entered into or materially modified on and after May 1, 2011 and did not have a significant impact on the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”) which amends U.S. GAAP to provide common fair value measurement and disclosure requirements with International Financial Reporting Standards. The Company does not expect ASU 2011-04 to have a significant effect on its current fair value measurements within the consolidated financial statements, however, the new guidance will result in additional disclosures which will include quantitative information about the unobservable inputs used in all Level 3 fair value measurements. ASU 2011-04 will be effective for the Company as of May 1, 2012.
There have been no other new accounting standards issued that have had, or are expected to have a material impact on the Company’s consolidated financial statements.
60
A reconciliation of the shares used in the computation of earnings per share for the years ended April 30 follows (in thousands):
|
2012
|
2011
|
2010
|
|
|
Weighted Average Shares Outstanding
|
60,387
|
60,515
|
58,897
|
|
Less: Unearned Restricted Shares
|
(203)
|
(355)
|
(399)
|
|
Shares Used for Basic Earnings Per Share
|
60,184
|
60,160
|
58,498
|
|
Dilutive Effect of Stock Options and Other Stock Awards
|
1,088
|
1,199
|
1,181
|
|
Shares Used for Diluted Earnings Per Share
|
61,272
|
61,359
|
59,679
|
For the years ended April 30, 2012, 2011, and 2010, options to purchase Class A Common Stock of 1,655,362, 411,372 and 1,714,089 respectively, have been excluded from the shares used for diluted earnings per share as their inclusion would have been antidilutive. In addition, for the years ended April 30, 2012, 2011 and 2010, unearned restricted shares of 10,000; 1,500 and 14,128 have been excluded as their inclusion would have been antidilutive.
On February 16, 2012, the Company acquired all of the stock of Inscape Holdings, Inc. (“Inscape”) for approximately $85 million in cash, net of cash acquired. Inscape is a leading provider of workplace learning solutions, including DiSC®-based assessments and training products, that develop critical interpersonal business skills. The acquisition will enable Wiley’s Professional/Trade business to capitalize on both companies’ content, assets, and relationships, enhance its global reach, and move more rapidly into digital delivery within the growing workplace learning and assessment market. Inscape was generating approximately $20 million annually in revenue prior to the acquisition. The purchase price of $85 million was allocated $56.8 million to Goodwill, $43.9 million to identifiable long-lived assets comprised primarily of customer relationships, content, technology and trademarks, with the remainder allocated to deferred tax liabilities and working capital. The customer relationships, content, technology and trademarks are being amortized over a weighted average estimated useful life of approximately 15 years. Unaudited pro forma financial information has not been presented since the effects of acquisitions were not material on either an individual or aggregate basis. The purchase accounting was substantially completed as of April 30, 2012. The Company does not anticipate any significant adjustments to finalize the purchase accounting.
Inventories at April 30 were as follows (in thousands):
|
2012
|
2011
|
|
|
Finished Goods
|
$86,954
|
$87,080
|
|
Work-in-Process
|
6,487
|
7,850
|
|
Paper, Cloth, and Other
|
8,072
|
7,940
|
|
101,513
|
102,870
|
|
|
Inventory Value of Estimated Sales Returns
|
7,246
|
9,485
|
|
LIFO Reserve
|
(7,522)
|
(5,932)
|
|
Total Inventories
|
$101,237
|
$106,423
|
See Note 2, Summary of Significant Accounting Policies - Sales Return Reserves for a discussion of Inventory Value From Estimated Returns.
61
Product development assets consisted of the following at April 30 (in thousands):
|
2012
|
2011
|
|
|
Composition Costs
|
$54,844
|
$54,162
|
|
Royalty Advances
|
53,570
|
55,392
|
|
Total
|
$108,414
|
$109,554
|
Composition costs are net of accumulated amortization of $178.2 million and $160.8 million as of April 30, 2012 and 2011, respectively.
Technology, property and equipment consisted of the following at April 30 (in thousands):
|
2012
|
2011
|
|
|
Capitalized Software and Computer Hardware
|
$379,034
|
$331,387
|
|
Buildings and Leasehold Improvements
|
98,635
|
95,537
|
|
Furniture, Fixtures and Warehouse Equipment
|
82,678
|
76,167
|
|
Land and Land Improvements
|
4,187
|
4,360
|
|
564,534
|
507,451
|
|
|
Accumulated Depreciation/Amortization
|
(376,555)
|
(341,910)
|
|
Total
|
$187,979
|
$165,541
|
The net book value of capitalized software costs was $88.9 million and $69.9 million as of April 30, 2012 and 2011, respectively. Depreciation/Amortization expense recognized in 2012, 2011, and 2010 for capitalized software costs was approximately $26.0 million, $22.6 million and $18.4 million, respectively.
The following table summarizes the activity in goodwill by segment as of April 30 (in thousands):
|
2011
|
Acquisitions
|
Foreign Translation Adjustment
|
2012
|
|
|
STMS
|
$483,433
|
$ -
|
$(8,856)
|
$474,577
|
|
P/T
|
159,465
|
56,847
|
(270)
|
216,042
|
|
Total
|
$642,898
|
$56,847
|
$(9,126)
|
$690,619
|
The goodwill acquired relates to the Company’s acquisition of Inscape as discussed in Note 4.
62
Intangible assets as of April 30 were as follows (in thousands):
|
2012
|
2011
|
|||||
|
Cost
|
Accumulated
Amortization
|
Cost
|
Accumulated Amortization
|
|||
|
Intangible Assets with Determinable Lives
|
||||||
|
Content and Publishing Rights
|
$794,986
|
$(227,934)
|
$779,135
|
$(195,586)
|
||
|
Brands & Trademarks
|
22,374
|
(8,401)
|
18,814
|
(6,944)
|
||
|
Covenants not to Compete
|
790
|
(484)
|
350
|
(297)
|
||
|
Customer Relationships
|
83,477
|
(17,240)
|
64,129
|
(13,972)
|
||
|
901,627
|
(254,059)
|
862,428
|
(216,799)
|
|||
|
Intangible Assets with Indefinite Lives
|
||||||
|
Content and Publishing Rights
|
102,031
|
-
|
111,908
|
-
|
||
|
Brands & Trademarks
|
165,896
|
-
|
175,193
|
-
|
||
|
$1,169,554
|
$(254,059)
|
$1,149,529
|
$(216,799)
|
|||
The change in intangible assets at April 30, 2012 compared to April 30, 2011 is primarily due to the Inscape acquisition described in Note 4, foreign exchange translation and amortization expense.
Based on the current amount of intangible assets subject to amortization and assuming current exchange rates, the estimated amortization expense for each of the succeeding five fiscal years are as follows: 2013 - $40.7 million; 2014 - $38.0 million; 2015 - $32.0 million; 2016 - $30.6 million and 2017 – $29.4 million.
In fiscal year 2011, the Company recorded a pre-tax bad debt provision of $9.3 million, or $6.0 million after-tax ($0.10 per diluted share), related to the Company’s customer, Borders Group, Inc. (“Borders”). The net charge was reflected in the Additional Provision for Doubtful Trade Account line item in the Consolidated Statements of Income and represented the difference between the Company’s outstanding receivable with Borders, net of existing reserves and recoveries. There were no additional charges or bad debt expense with respect to this customer. On February 16, 2011, Borders filed a petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy code.
In fiscal year 2010, the Company recognized intangible asset impairment and restructuring charges of $15.1 million, or $10.6 million after-tax ($0.17 per diluted share), which is reflected in the Impairment and Restructuring Charges line item in the Consolidated Statements of Income and described in more detail below.
Impairment Charges
GIT Verlag, a business-to-business German-language controlled circulation magazine business, was acquired by the Company in 2002. As part of a strategic review of certain non-core businesses within the STMS reporting segment, the Company considered alternatives for GIT Verlag during fiscal year 2010 due to the economic outlook for the print advertising business in German language publishing. As a result of the review, the Company performed an impairment test on the intangible assets related to GIT Verlag which resulted in an $11.5 million pre-tax impairment charge in fiscal year 2010. This impairment charge reduced the carrying value of the content and publication rights of GIT Verlag, which was classified as an indefinite-lived intangible asset, to its fair value of $7.7 million. Concurrent with the strategic review and impairment, the Company classified the remaining content and publication rights as a finite-lived intangible asset which is being amortized over a 10 year period. The Company also identified a similar decline in the economic outlook for three smaller business-to-business controlled circulation advertising magazines. An impairment test on the intangible assets associated with those magazines resulted in an additional $0.9 million pre-tax impairment charge in fiscal year 2010 that reduced the intangible assets carrying values of these magazines to their fair value of $0.5 million. No further impairment provision was required.
63
Restructuring Charges
After considering a number of strategic alternatives for the GIT Verlag business, the Company implemented a restructuring plan in fiscal year 2010 to reduce certain staff levels and the number of magazines published. As a result, the Company recorded a pre-tax restructuring charge of approximately $1.6 million within the STMS reporting segment in fiscal year 2010 for GIT Verlag severance costs. The Company also recorded severance costs of approximately $1.1 million related to the off-shoring and outsourcing of certain central marketing and content management activities to Singapore and other countries in Asia. There were no additional restructuring charges related to these programs and all severance payments were substantially completed in fiscal year 2011.
The provision for income taxes for the years ending April 30 were as follows (in thousands):
|
2012
|
2011
|
2010
|
|
|
Current Provision
|
|||
|
US – Federal
|
$11,253
|
$15,563
|
$19,976
|
|
International
|
43,017
|
35,913
|
25,460
|
|
State and Local
|
2,049
|
1,988
|
1,749
|
|
Total Current Provision
|
$56,319
|
$53,464
|
$47,185
|
|
Deferred Provision (Benefit)
|
|||
|
US – Federal
|
$9,736
|
$6,164
|
$5,536
|
|
International
|
(7,820)
|
2,040
|
3,286
|
|
State and Local
|
1,114
|
(2,497)
|
659
|
|
Total Deferred Provision
|
$3,030
|
$5,707
|
$9,481
|
|
Total Provision
|
$59,349
|
$59,171
|
$56,666
|
International and United States pretax income for the years ending April 30 were as follows (in thousands):
|
2012
|
2011
|
2010
|
|
|
International
|
$171,315
|
$162,767
|
$133,088
|
|
United States
|
100,780
|
68,293
|
67,121
|
|
Total
|
$272,095
|
$231,060
|
$200,209
|
64
The Company’s effective income tax rate as a percentage of pretax income differed from the U.S. federal statutory rate as shown below:
|
2012
|
2011
|
2010
|
|
|
U.S. Federal Statutory Rate
|
35.0%
|
35.0%
|
35.0%
|
|
State Income Taxes, Net of U.S. Federal Tax Benefit
|
0.8
|
(0.1)
|
0.8
|
|
Benefit from Lower Taxes on Non-US Income
|
(6.8)
|
(7.6)
|
(8.9)
|
|
Deferred Tax Benefit From Statutory Tax Rate Change
|
(3.2)
|
(1.8)
|
-
|
|
Tax Adjustments
|
(4.0)
|
(0.9)
|
-
|
|
Other
|
-
|
1.0
|
1.4
|
|
Effective Income Tax Rate
|
21.8%
|
25.6%
|
28.3%
|
Deferred Tax Benefit from Statutory Tax Rate Change:
In fiscal years 2012 and 2011, the Company recognized non-cash deferred tax benefits of $8.8 million ($0.14 per diluted share) and $4.2 million ($0.07 per diluted share), respectfully, principally associated with new tax legislation enacted in the United Kingdom (“U.K.”) that reduced the U.K. statutory income tax rates by 2% and 1%, respectively. The benefits reflect the remeasurement of all applicable U.K deferred tax balances to the new income tax rates as of April 1, 2012 and 2011, respectively.
Tax Adjustments:
In fiscal years 2012 and 2011, the Company recorded tax benefits of $10.9 million and $2.0 million, respectively, related to the expiration of the statute of limitations and favorable resolutions of certain federal, state and foreign tax matters with tax authorities. Fiscal year 2012 includes the release of a $7.5 million income tax reserve that was originally recorded in conjunction with the purchase accounting for the Blackwell acquisition.
Accounting for Uncertainty in Income Taxes:
As of April 30, 2012 and April 30, 2011, the total amount of unrecognized tax benefits were $24.3 million and $38.1 million, respectively, of which $3.0 million and $6.2 million represented accruals for interest and penalties recorded as additional tax expense in accordance with the Company’s accounting policy. Within the income tax provision for fiscal years 2012 and 2011, the Company recorded net interest income/(expense) and penalties on the unrecognized and recognized tax benefits of $1.6 million and ($0.8) million, respectively. As of April 30, 2012 and April 30, 2011, the total amount of unrecognized tax benefits that, if recognized, would reduce the Company’s income tax provision were approximately $22.6 million and $35.0 million, respectively. The Company does not expect any significant changes to the unrecognized tax benefits within the next 12 months.
A reconciliation of the unrecognized tax benefits included within the Other Long-Term Liabilities line item in the Consolidated Statements of Financial Position are as follows (in thousands):
|
2012
|
2011
|
|
|
Balance at May 1st
|
$38,100
|
$37,612
|
|
Additions for Current Year Tax Positions
|
375
|
459
|
|
Additions for Prior Year Tax Positions
|
1,105
|
1,224
|
|
Reductions for Prior Year Tax Positions
|
(1,521)
|
(2,381)
|
|
Foreign Translation Adjustment
|
(1,681)
|
1,653
|
|
Reductions for Lapse of Statute of Limitations
|
(12,126)
|
(467)
|
|
Balance at April 30th
|
$24,252
|
$38,100
|
65
Tax Audits:
The Company files income tax returns in the U.S. and various states and non-U.S. tax jurisdictions. The Company’s major taxing jurisdictions include the United States, the United Kingdom and Germany. Other than the Company’s German subsidiaries, the Company is no longer subject to income tax examinations for years prior to fiscal year 2009 in the major jurisdictions in which the Company is subject to tax. The Company completed the U.S. audit for fiscal years 2006 through 2009 resulting in minimal adjustments principally related to temporary differences.
The Company completed the German tax audit for fiscal years 2003 through 2007 and audits have commenced for fiscal years 2008 and 2009. The German tax authorities notified the Company in May 2012 that they are challenging the Company’s tax position with respect to the step up of the tax deductible basis for the Company’s German-related assets that occurred in fiscal year 2003 and the corresponding amortization claimed as a tax benefit. The Company’s management and its advisors believe that it is “more likely than not” to successfully defend that the tax treatment was proper and in accordance with German tax regulations. See Note 19 “Subsequent Event” for further information.
Deferred Taxes:
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):
|
2012
|
2011
|
|
|
Inventory
|
$7,185
|
$5,921
|
|
Intangible and Fixed Assets
|
276,035
|
267,570
|
|
Total Deferred Tax Liabilities
|
$283,220
|
$273,491
|
|
Net Operating Losses
|
$6,297
|
$6,970
|
|
Reserve for Sales Returns and Doubtful Accounts
|
5,577
|
7,054
|
|
Accrued Expenses
|
6,157
|
9,599
|
|
Accrued Employee Compensation
|
30,946
|
30,300
|
|
Retirement and Post-Employment Benefits
|
48,188
|
28,069
|
|
Total Deferred Tax Assets
|
$97,165
|
$81,992
|
|
|
|
|
|
Net Deferred Tax Liabilities
|
$186,055
|
$191,499
|
Pretax earnings of a non-U.S. subsidiary or affiliate are subject to U.S. taxation when repatriated. The Company intends to reinvest earnings outside the U.S. except in instances where repatriating such earnings would result in no additional tax. Accordingly, the Company has not recognized U.S. tax expense on non-U.S. earnings. At April 30, 2012, the accumulated undistributed earnings of non-U.S. subsidiaries approximated $432 million. It is not practical to determine the U.S. income tax liability that would be payable if such earnings were not indefinitely reinvested.
66
Outstanding debt and available credit facilities consisted of the following as of April 30 (in thousands):
|
2012
|
2011
|
|
|
Revolving Credit Facility
|
$475,000
|
$11,200
|
|
Term Loan
|
-
|
443,000
|
|
Total Debt
|
475,000
|
454,200
|
|
Less: Current Portion
|
-
|
(123,700)
|
|
Total Long-Term Debt
|
$475,000
|
$330,500
|
On November 2, 2011, the Company amended and restated its existing credit facility with Bank of America - Merrill Lynch and The Royal Bank of Scotland plc as joint lead arrangers and Bank of America as administrative agent. The new agreement consists of a $700 million five-year senior revolving credit facility, which can be drawn in multiple currencies. The proceeds of the new revolving credit facility were used to pay down the Company’s prior credit facility and meet seasonal operating cash requirements. The Company has the option of borrowing at the following floating interest rates: (i) at a rate based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 1.05% to 1.65%, depending on the Company’s consolidated leverage ratio, as defined, or (ii) for U.S. dollar-denominated loans only, at the lender’s base rate plus an applicable margin ranging from zero to 0.65%, depending on the Company’s consolidated leverage ratio. The lender’s base rate is defined as the highest of (i) the U.S. federal funds effective rate plus a 0.50% margin, (ii) the Eurocurrency rate, as defined, plus a 1.00% margin, or (iii) the Bank of America prime lending rate. In addition, the Company will pay a facility fee ranging from 0.20% to 0.35% depending on the Company’s consolidated leverage ratio. The Company also has the option to request a credit limit increase of up to $250 million in minimum increments of $50 million, subject to the approval of the lenders. The amended credit agreement contains certain restrictive covenants related to the Company’s consolidated leverage ratio and interest coverage ratio, which the Company was in compliance with as of April 30, 2012. Due to the fact that there are no principal payments due until the end of the amended agreement in fiscal year 2017, the Company has classified its entire debt obligation as long-term as of April 30, 2012.
The Company and its subsidiaries have other short-term lines of credit aggregating $9.7 million at various interest rates. No borrowings under the credit lines were outstanding as of April 30, 2012 or 2011. The Company’s total available lines of credit as of April 30, 2012 were approximately $710 million, of which approximately $235 million was unused. The weighted average interest rates on long-term debt outstanding during fiscal years 2012 and 2011 were 1.60% and 2.46%, respectively. As of April 30, 2012 and 2011, the weighted average interest rates for the long-term debt were 2.01% and 1.21%, respectively. Based on estimates of interest rates currently available to the Company for loans with similar terms and maturities, the fair value of the Company’s long-term debt approximates its carrying value.
The Company, from time-to-time, enters into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. The Company does not use financial instruments for trading or speculative purposes.
67
Interest Rate Contracts:
The Company had approximately $475.0 million of variable rate loans outstanding at April 30, 2012, which approximated fair value. As of April 30, 2012, the Company maintained two interest rate swap agreements that were designated as fully effective cash flow hedges as defined under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging.” The Company also maintained two additional interest rate swap agreements that expired during fiscal year 2011 which were also designated as fully effective cash flow hedges. As a result, there was no impact on the Company’s Consolidated Statements of Income for changes in the fair value of the interest rate swaps. Under ASC 815, fully effective derivative instruments that are designated as cash flow hedges have changes in their fair value recorded initially within Accumulated Other Comprehensive Loss in the Consolidated Statements of Financial Position. As interest expense is recognized based on the variable rate loan agreements, the corresponding deferred gain or loss on the interest rate swaps is reclassified from Accumulated Other Comprehensive Loss to Interest Expense in the Consolidated Statements of Income. It is management’s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.
On February 16, 2007, the Company entered into an interest rate swap agreement which fixed variable interest due on a portion of its term loan (“Term Loan”). Under the terms of the agreement, the Company paid a fixed rate of 5.076% and received a variable rate of interest based on three month LIBOR (as defined) from the counterparty which was reset every three months for a four-year period ending February 8, 2011, the date that the swap expired.
On October 19, 2007, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its revolving credit facility (“Revolving Credit Facility”). Under the terms of this interest rate swap, the Company paid a fixed rate of 4.60% and received a variable rate of interest based on three month LIBOR (as defined) from the counterparty which was reset every three months for a three-year period. This interest rate swap expired on August 8, 2010.
On August 19, 2010, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its variable rate loans outstanding. Under the terms of the agreement, the Company pays a fixed rate of 0.8% and receives a variable rate of interest based on one-month LIBOR (as defined) from the counterparty which is reset every month for a twenty-nine month period ending January 19, 2013. As of both April 30, 2012 and 2011, the notional amount of the interest rate swap was $125.0 million.
On March 30, 2012, the Company entered into an interest rate swap agreement which fixed a portion of the variable interest due on its variable rate loans outstanding. Under the terms of the agreement, the Company pays a fixed rate of 0.645% and receives a variable rate of interest based on one month LIBOR (as defined) from the counterparty which is reset every month for a three-year period ending March 31, 2015. As of April 30, 2012, the notional amount of the interest rate swap was $250.0 million.
The Company records the fair value of its interest rate swaps on a recurring basis using Level 2 inputs of quoted prices for similar assets or liabilities in active markets. The fair value of the interest rate swaps as of April 30, 2012 and 2011 was a net deferred loss of $1.7 million and $0.5 million, respectively. Based on the maturity dates of the contracts, approximately $0.5 million and $1.2 million of the deferred loss as of April 30, 2012 was recorded in Other Accrued Liabilities and Other Long-Term Liabilities in the Consolidated Statements of Financial Position, respectively. As of April 30, 2011, the entire deferred loss was recorded in Other Long-Term Liabilities. Net losses that were reclassified from Accumulated Other Comprehensive Loss into Interest Expense for fiscal years 2012, 2011 and 2010 were $0.8 million, $9.1 million and $20.4 million, respectively. Based on the amount in Accumulated Other Comprehensive Loss at April 30, 2012, approximately $1.4 million, net of tax, of unrecognized loss would be reclassified into net income in the next twelve months.
68
Foreign Currency Contracts:
The Company may enter into forward exchange contracts to manage the Company’s exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign Exchange Losses on the Consolidated Statements of Income, and carried at their fair value on the Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign Exchange Losses. During Fiscal years 2010 through 2012 the Company did not designate any forward exchange contracts as hedges under current accounting standards as the benefits of doing so were not material due to the short-term nature of the contracts. The fair value changes in the forward exchange contracts substantially mitigated the changes in the value of the applicable foreign currency denominated assets and liabilities. The fair values of the contracts were measured on a recurring basis using Level 2 inputs and for fiscal years 2012, 2011 and 2010 the gain/(loss) recognized was $2.4 million, $0.6 million, and ($2.0 million), respectively. As of both April 30, 2012 and 2011, the Company had settled its forward exchange contracts.
The following schedule shows the composition of rent expense for operating leases (in thousands):
|
2012
|
2011
|
2010
|
|
|
Minimum Rental
|
$43,620
|
$39,676
|
$37,261
|
|
Less: Sublease Rentals
|
(501)
|
(665)
|
(1,709)
|
|
Total
|
$43,119
|
$39,011
|
$35,552
|
Future minimum payments under operating leases were $242.0 million at April 30, 2012. Annual minimum payments under these leases for fiscal years 2013 through 2017 are approximately $38.8 million, $36.4 million, $35.4 million, $34.7 million, and $32.4 million, respectively. Rent expense associated with operating leases that include scheduled rent increases and tenant incentives, such as rent holidays or leasehold improvement allowances, are 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.
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.
The Company recognizes 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, in the Consolidated Statements of Financial Position. The change in the funded status of the plan is recognized within Accumulated Other Comprehensive Loss in the Consolidated Statements of Financial Position. Plan assets and obligations are measured as of the Company’s balance sheet date.
69
The amounts in Accumulated Other Comprehensive Loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year are as follows (in thousands):
|
United States
|
Non-U.S.
|
Total
|
|
|
Actuarial Loss
|
$5,128
|
$3,995
|
$9,123
|
|
Prior Service Cost
|
854
|
126
|
980
|
|
Total
|
$5,982
|
$4,121
|
$10,103
|
The Company has agreements with certain officers and senior management that provide for the payment of supplemental retirement benefits after the termination of employment for 10 years or in a lifetime annuity. 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 and the weighted-average assumptions were as follows (in thousands):
|
2012
|
2011
|
2010
|
||||||
|
U.S.
|
Non-U.S.
|
U.S.
|
Non-U.S.
|
U.S.
|
Non-U.S.
|
|||
|
Service Cost
|
$9,951
|
$6,062
|
$9,591
|
$6,681
|
$6,451
|
$4,644
|
||
|
Interest Cost
|
12,042
|
15,862
|
10,758
|
16,118
|
10,033
|
14,022
|
||
|
Expected Return on Plan Assets
|
(11,679)
|
(17,412)
|
(10,118)
|
(15,542)
|
(7,424)
|
(12,044)
|
||
|
Net Amortization of Prior Service Cost and Transition Asset
|
902
|
133
|
770
|
117
|
638
|
223
|
||
|
Recognized Net Actuarial Loss
|
4,444
|
670
|
4,343
|
2,915
|
2,377
|
1,399
|
||
|
Net Pension Expense
|
$15,660
|
$5,315
|
$15,344
|
$10,289
|
$12,075
|
$8,244
|
||
|
Discount Rate
|
5.7%
|
5.6%
|
5.9%
|
5.7%
|
7.5%
|
6.9%
|
||
|
Rate of Compensation Increase
|
4.0%
|
4.4%
|
4.0%
|
4.6%
|
4.0%
|
4.2%
|
||
|
Expected Return on Plan Assets
|
8.0%
|
6.8%
|
8.5%
|
6.8%
|
8.7%
|
6.8%
|
||
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 and $563.4 million, $532.2 million and $419.4 million, respectively, as of April 30, 2012 and $234.4 million, $220.2 million, and $144.9 million, respectively, as of April 30, 2011.
70
The following table sets forth the changes in and the status of the plans’ assets and benefit obligations:
|
Dollars in thousands
|
2012
|
2011
|
||
|
CHANGE IN PLAN ASSETS
|
U.S.
|
Non-U.S
.
|
U.S.
|
Non-U.S.
|
|
Fair Value of Plan Assets, Beginning of Year
|
$144,887
|
$268,268
|
$119,301
|
$223,396
|
|
Actual Return on Plan Assets
|
9,676
|
8,033
|
19,409
|
19,369
|
|
Employer Contributions
|
15,656
|
9,283
|
12,606
|
12,176
|
|
Employees’ Contributions
|
-
|
1,937
|
-
|
1,960
|
|
Benefits Paid
|
(9,823)
|
(11,556)
|
(6,429)
|
(6,619)
|
|
Foreign Currency Rate Changes
|
-
|
(5,636)
|
-
|
17,986
|
|
Fair Value, End of Year
|
$160,396
|
$270,329
|
$144,887
|
$268,268
|
|
CHANGE IN PROJECTED BENEFIT OBLIGATION
|
|
|||
|
Benefit Obligation, Beginning of Year
|
$(208,969)
|
$(300,178)
|
$(182,064)
|
$(282,119)
|
|
Service Cost
|
(9,951)
|
(6,062)
|
(9,591)
|
(6,681)
|
|
Interest Cost
|
(12,042)
|
(15,862)
|
(10,758)
|
(16,118)
|
|
Employee Contributions
|
-
|
(1,937)
|
-
|
(1,960)
|
|
Actuarial Gain (Loss)
|
(30,980)
|
(21,846)
|
(11,615)
|
21,329
|
|
Benefits Paid
|
9,823
|
11,556
|
6,429
|
6,619
|
|
Foreign Currency Rate Changes
|
-
|
7,900
|
-
|
(21,151)
|
|
Amendments and Other
|
(1,280)
|
(301)
|
(1,370)
|
(97)
|
|
Benefit Obligation, End of Year
|
$(253,399)
|
$(326,730)
|
$(208,969)
|
$(300,178)
|
|
Funded Status
|
$(93,003)
|
$(56,401)
|
$(64,082)
|
$(31,910)
|
|
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION:
|
|
|
||
|
Deferred Pension Asset
|
$ -
|
$ -
|
$ -
|
$ 49
|
|
Current Pension Liability
|
(2,524)
|
(1,065)
|
(3,241)
|
(1,206)
|
|
Noncurrent Pension Liability
|
(90,479)
|
(55,336)
|
(60,841)
|
(30,753)
|
|
Net Amount Recognized in Statement of Financial Position
|
$(93,003)
|
$(56,401)
|
$(64,082)
|
$(31,910)
|
|
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME CONSIST OF (before tax)
|
|
|
||
|
Net Actuarial Loss
|
$(82,301)
|
$(65,859)
|
$(53,758)
|
$(35,840)
|
|
Prior Service Cost
|
(3,062)
|
(1,185)
|
(2,684)
|
(1,120)
|
|
Total Accumulated Other Comprehensive Loss
|
$(85,363)
|
$(67,044)
|
$(56,442)
|
$(36,960)
|
|
Change in Accumulated Other Comprehensive Loss
|
$(28,921)
|
$(30,084)
|
$1,380
|
$25,042
|
|
WEIGHTED AVERAGE ASSUMPTIONS USED IN DETERMINING ASSETS AND LIABILITIES
|
|
|
||
|
Discount Rate
|
4.7%
|
5.0%
|
5.7%
|
5.6%
|
|
Rate of Compensation Increase
|
3.1%
|
3.4%
|
4.0%
|
4.4%
|
|
Accumulated Benefit Obligations
|
$(242,780)
|
$(299,947)
|
$(196,316)
|
$(276,045)
|
71
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 expected benefit payments as of April 30, 2012. The spot rate curve used is based upon a portfolio of Moody’s-rated Aa
3
(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 and are estimated by asset class including an anticipated inflation rate. The expected long-term rates are then compared to the historic investment performance of the plan assets as well as future expectations and estimated through consultation with investment advisors and actuaries.
Pension plan assets/investments:
The investment guidelines for the defined benefit pension plans are established based upon an evaluation of market conditions, plan liabilities, cash requirements for benefit payments, and tolerance for risk. Investment guidelines include the use of actively and passively managed securities. 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 invest in high quality and diversified equity and debt 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 54% equity securities, 43% fixed income securities and cash, and 3% real estate. Due to volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between acceptable ranges of plus or minus 5%. The Company regularly reviews the investment allocations and periodically rebalances investments to the target allocations. The Company categorizes its pension assets into three levels based upon the assumptions (inputs) used to price the assets. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
·
|
Level 1: Unadjusted quoted prices in active markets for identical assets.
|
|
·
|
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets.
|
|
·
|
Level 3: Unobservable inputs reflecting assumptions about the inputs used in pricing the asset.
|
72
The Company did not maintain any level 3 assets during fiscal years 2012 and 2011. The following tables set forth, by level within the fair value hierarchy, pension plan assets at their fair value as of April 30 (in thousands):
|
2012
|
2011
|
||||||
|
Level 1
|
Level 2
|
Total
|
Level 1
|
Level 2
|
Total
|
||
|
U.S. Plan Assets
|
|||||||
|
Equity Securities:
|
|||||||
|
U.S. Commingled Funds
|
$ -
|
$68,750
|
$68,750
|
$ -
|
$56,937
|
$56,937
|
|
|
Non-U.S. Commingled Funds
|
-
|
29,208
|
29,208
|
-
|
30,632
|
30,632
|
|
|
Fixed Income Commingled Funds
|
-
|
51,630
|
51,630
|
-
|
47,825
|
47,825
|
|
|
Real Estate
|
-
|
10,808
|
10,808
|
-
|
9,493
|
9,493
|
|
|
Total U.S. Plan Assets
|
$ -
|
$160,396
|
$160,396
|
$ -
|
$144,887
|
$144,887
|
|
|
Non-U.S. Plan Assets
|
|||||||
|
Equity Securities:
|
|||||||
|
U.S. Equities
|
$14,720
|
$14,556
|
$29,276
|
$12,500
|
$14,635
|
$27,135
|
|
|
Non-U.S. Equities
|
13,856
|
71,851
|
85,707
|
17,798
|
74,850
|
92,648
|
|
|
Balanced Managed Funds
|
9,761
|
1,542
|
11,303
|
9,471
|
1,532
|
11,003
|
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
Government/Sovereign Securities
|
15,738
|
32,937
|
48,675
|
14,416
|
28,090
|
42,506
|
|
|
Fixed Income Funds
|
17,483
|
51,922
|
69,405
|
18,046
|
51,372
|
69,418
|
|
|
Other:
|
|||||||
|
Real Estate/Other
|
3,027
|
12,586
|
15,613
|
3,866
|
11,329
|
15,195
|
|
|
Cash and Cash Equivalents
|
10,350
|
-
|
10,350
|
10,363
|
-
|
10,363
|
|
|
Total Non-U.S. Plan Assets
|
$84,935
|
$185,394
|
$270,329
|
$86,460
|
$181,808
|
$268,268
|
|
|
Total Plan Assets
|
$84,935
|
$345,790
|
$430,725
|
$86,460
|
$326,695
|
$413,155
|
|
Expected employer contributions to the defined benefit pension plans in fiscal year 2013 will be approximately $20.8 million, including $8.7 million of minimum amounts required for the Company’s non-U.S. plans. From time to time, the Company may elect to make voluntary contributions to its defined benefit plans to improve their funded status.
Benefit payments from all plans are expected to approximate $14.7 million in fiscal year 2013, $17.6 million in fiscal year 2014, $18.4 million in fiscal year 2015, $20.4 million in fiscal year 2016, $21.6 million in fiscal year 2017 and $132.1 million for fiscal years 2018 through 2022.
The Company provides contributory life insurance and health care benefits, subject to certain dollar limitations for substantially all of its eligible 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 Consolidated Statements of Financial Position as of April 30, 2012 and 2011 was $5.7 million and $4.4 million, respectively. Annual expenses for these plans for fiscal years 2012, 2011 and 2010 were $0.7 million, $0.6 million and $0.5 million, respectively.
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 $9.1 million, $8.5 million and $8.4 million in fiscal years 2012, 2011, and 2010, respectively.
73
All equity compensation plans have been approved by security holders. At the meeting of shareholders held in September 2009, shareholders approved the 2009 Key Employee Stock Plan (“the Plan”). Under the Plan, qualified employees are eligible to receive awards that may include stock options, performance-based stock awards and other 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, 2012, there were approximately 6,599,328 securities remaining available for future issuance under the Plan. The Company issues treasury shares to fund awards issued under the Plan.
Stock Option Activity:
Under the terms of the Company’s stock option plan, the exercise price of stock options granted 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 for options granted each period using the Black-Scholes option-pricing model and the significant weighted average assumptions used in their determination. The expected life represents an estimate of the period of time stock options will be outstanding based on the historical exercise behavior of option recipients. The risk-free interest rate is based on the corresponding U.S. Treasury yield curve in effect at the time of the grant. The expected volatility is based on the historical volatility of the Company’s Common Stock price over the estimated life of the option while, the dividend yield is based on the expected dividend payments to be made by the Company.
|
For the Twelve Months
Ending April 30,
|
|||||
|
2012
|
2011
|
2010
|
|||
|
Fair Value of Options on Grant Date
|
$14.11
|
$11.97
|
$11.32
|
||
|
Weighted Average assumptions:
|
|||||
|
Expected Life of Options (years)
|
7.3
|
7.7
|
7.8
|
||
|
Risk-Free Interest Rate
|
2.3%
|
2.7%
|
3.3%
|
||
|
Expected Volatility
|
29.0%
|
28.9%
|
29.9%
|
||
|
Expected Dividend Yield
|
1.6%
|
1.6%
|
1.6%
|
||
|
Fair Value of Common Stock on Grant Date
|
$49.55
|
$40.02
|
$35.04
|
||
74
A summary of the activity and status of the Company’s stock option plans follows:
|
2012
|
2011
|
2010
|
||||||||
|
Stock Options
|
Options
(in 000’s)
|
Weighted Average Exercise Price
|
Weighted Average Remaining Term
(in years)
|
Average Intrinsic Value
(in millions)
|
Options
(in 000’s)
|
Weighted Average Exercise Price
|
Options
(in 000’s)
|
Weighted Average Exercise Price
|
||
|
Outstanding at Beginning of Year
|
4,258
|
$38.52
|
4,987
|
$36.51
|
5,722
|
$34.05
|
||||
|
Granted
|
411
|
$49.55
|
413
|
$40.02
|
695
|
$35.04
|
||||
|
Exercised
|
(539)
|
$29.97
|
(1,133)
|
$30.23
|
(1,407)
|
$25.74
|
||||
|
Expired or Forfeited
|
-
|
-
|
(9)
|
$32.54
|
(23)
|
$40.37
|
||||
|
Outstanding at End of Year
|
4,130
|
$40.74
|
4.5
|
$23.7
|
4,258
|
$38.52
|
4,987
|
$36.51
|
||
|
Exercisable at End of Year
|
2,301
|
$40.08
|
2.9
|
$14.5
|
2,218
|
$35.40
|
2,513
|
$31.47
|
||
|
Vested and Expected to Vest in the Future at April 30, 2012
|
3,992
|
$40.82
|
4.5
|
$22.6
|
|
|||||
The intrinsic value is the difference between the Company’s common stock price and the option grant price. The total intrinsic value of options exercised during fiscal years 2012, 2011 and 2010 was $8.2 million, $23.5 million and $22.9 million, respectively. The total grant date fair value of stock options vested during fiscal year 2012 was $10.5 million.
As of April 30, 2012, there was $5.7 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 2.2 years on a weighted average basis.
The following table summarizes information about stock options outstanding and exercisable at April 30, 2012:
|
Options Outstanding
|
Options Exercisable
|
|||||
|
Range of
Exercise Prices
|
Number of Options
(in 000’s)
|
Weighted Average Remaining Term (in years)
|
Weighted Average Exercise Price
|
Number of Options
(in 000’s)
|
Weighted Average Exercise Price
|
|
|
$21.44 to $25.32
|
125
|
1.0
|
25.21
|
125
|
$25.21
|
|
|
$31.89 to $38.55
|
1,939
|
3.6
|
35.36
|
1,246
|
$35.54
|
|
|
$40.02 to $49.55
|
2,066
|
5.5
|
46.72
|
930
|
$48.15
|
|
|
Total/Average
|
4,130
|
4.5
|
40.74
|
2,301
|
$40.08
|
|
Performance-Based and Other Restricted Stock Activity:
Under the terms of the Company’s long-term incentive plans, performance-based restricted stock awards are payable in restricted shares of the Company’s Class A Common Stock upon the achievement of certain three-year financial performance-based targets. During each three-year period, the Company adjusts compensation expense based upon its best estimate of expected performance. The restricted performance shares vest 50% on the first and second anniversary date after the award is earned.
75
The Company may also grant individual restricted awards 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 performance-based and other restricted stock awards during fiscal years 2012, 2011 and 2010 was as follows (shares in thousands):
|
2012
|
2011
|
2010
|
|||
|
Restricted Shares
|
Weighted Average Grant Date Value
|
Restricted Shares
|
Restricted Shares
|
||
|
Nonvested Shares at Beginning of Year
|
904
|
$40.15
|
926
|
682
|
|
|
Granted
|
272
|
$49.42
|
255
|
363
|
|
|
Change in shares due to performance
|
31
|
$35.04
|
78
|
191
|
|
|
Vested and Issued
|
(159)
|
$47.06
|
(349)
|
(292)
|
|
|
Forfeited
|
(6)
|
$48.88
|
(6)
|
(18)
|
|
|
Nonvested Shares at End of Year
|
1,042
|
$41.31
|
904
|
926
|
|
As of April 30, 2012, there was $19.3 million of unrecognized share-based compensation cost related to performance-based and other restricted stock awards, which is expected to be recognized over a period up to 5 years, or 3.0 years on a weighted average basis. Compensation expense for restricted stock awards is measured using the closing market price of the Company’s Class A Common Stock at the date of grant. The total grant date value of shares vested during fiscal years 2012, 2011 and 2010 was $7.5 million, $13.5 million and $10.2 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 12,474; 11,144 and 14,130 shares awarded under the Director Plan for fiscal years 2012, 2011 and 2010, respectively.
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.
During fiscal year 2011, the Board of Directors of the Company approved a share repurchase program for an additional four million shares of Class A or Class B Common Stock. The approval of this repurchase program increased the number of shares that may be purchased from time to time in the open market and through privately negotiated transactions to eight million. During fiscal year 2012, the Company repurchased 1,864,700 shares at an average price $46.69 per share. As of April 30, 2012, the Company has authorization from its Board of Directors to purchase up to 2,356,525 additional shares.
76
The Company provides content and content-enabled digital services to customers worldwide. The Company maintains publishing, marketing and distribution centers principally in Asia, Australia, Canada, Germany, the United Kingdom and the United States. Below is a description of the Company’s three operating segments.
Scientific, Technical, Medical and Scholarly
provides content and content-enabled digital services for the scientific, technical, medical and scholarly communities worldwide including academic, corporate, government and public libraries; researchers; scientists; clinicians; engineers and technologists; scholarly and professional societies; and students and professors. Products include journals, books, major reference works, databases, clinical decision support tools and laboratory manuals and workflow tools. Publishing areas include the physical sciences, health sciences, social science and humanities and life sciences. Products are sold and distributed globally, online and in print through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, bookstores, online booksellers and other customers. Publishing centers include Australia, Germany, India, Singapore, the United Kingdom and the United States.
Professional/Trade
acquires, develops and publishes books, workflow solutions, certification and training services and other information services in the subject areas of business, technology, architecture, cooking, psychology, professional education, travel, health, 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 websites. Professional/Trade customers are professionals, consumers and students worldwide. Publishing centers include Asia, Australia, Canada, Germany, the United Kingdom and the United States.
Global Education
publishes educational content for two and four-year colleges and universities, for-profit career colleges, advanced placement classes, as well as secondary schools in Australia. Global Education products focus on courses in the sciences, engineering, mathematics, business/accounting, geography, computer science, statistics, education, culinary, hospitality, psychology and world languages. Global Education delivers its content, tools and resources to students, faculty and institutions principally through college bookstores and online distributors, with customers having access to content in muti-media formats as well as the traditional textbook. The Company maintains centers in Asia, Australia, Canada, India, the United Kingdom and the United States.
Shared Services -
The Company reports separate financial data for shared service functions, which are centrally managed for the benefit of the three global businesses, including Distribution, Technology Services, Finance and Other Administration support.
77
Segment information is as follows (in thousands):
|
For the years ended April 30,
|
|||
|
2012
|
2011
|
2010
|
|
|
Revenue
|
|||
|
Scientific, Technical, Medical and Scholarly
|
$1,040,727
|
$998,902
|
$986,683
|
|
Professional/Trade
|
433,658
|
437,088
|
429,988
|
|
Global Education
|
308,357
|
306,561
|
282,391
|
|
Total
|
$1,782,742
|
$1,742,551
|
$1,699,062
|
|
Direct Contribution to Profit
|
|||
|
Scientific, Technical, Medical and Scholarly
|
$452,274
|
$424,797
|
$405,241
|
|
Professional/Trade
|
111,898
|
95,496
|
100,196
|
|
Global Education
|
104,244
|
101,044
|
86,212
|
|
Total
|
$668,416
|
$621,337
|
$591,649
|
|
Shared Services and Administration Costs
|
|||
|
Distribution
|
$(109,079)
|
$(113,010)
|
$(110,858)
|
|
Technology Services
|
(144,418)
|
(125,766)
|
(102,634)
|
|
Finance
|
(45,106)
|
(45,243)
|
(47,294)
|
|
Other Administration
|
(89,394)
|
(89,170)
|
(88,271)
|
|
Total
|
$(387,997)
|
$(373,189)
|
$(349,057)
|
|
Operating Income
|
$280,419
|
$248,148
|
$242,592
|
|
Foreign Exchange Transaction Losses
|
(2,261)
|
(2,188)
|
(10,883)
|
|
Interest Expense & Other, net
|
(6,063)
|
(14,900)
|
(31,500)
|
|
Income Before Taxes
|
$272,095
|
$231,060
|
$200,209
|
|
Total Assets
|
|||
|
Scientific, Technical, Medical and Scholarly
|
$1,444,114
|
$1,486,052
|
$1,415,979
|
|
Professional/Trade
|
548,751
|
465,752
|
469,273
|
|
Global Education
|
156,286
|
157,822
|
156,676
|
|
Corporate/Shared Services
|
383,795
|
320,515
|
266,682
|
|
Total
|
$2,532,946
|
$2,430,141
|
$2,308,610
|
|
Expenditures for Long Lived Assets
|
|||
|
Scientific, Technical, Medical and Scholarly
|
$24,454
|
$24,636
|
$21,960
|
|
Professional/Trade
|
103,934
|
20,881
|
23,325
|
|
Global Education
|
20,729
|
21,545
|
18,449
|
|
Corporate/Shared Services
|
62,935
|
45,968
|
42,390
|
|
Total
|
$212,052
|
$113,030
|
$106,124
|
|
Depreciation and Amortization
|
|||
|
Scientific, Technical, Medical and Scholarly
|
$56,335
|
$54,423
|
$52,215
|
|
Professional/Trade
|
34,734
|
34,954
|
32,191
|
|
Global Education
|
29,792
|
27,672
|
25,125
|
|
Corporate/Shared Services
|
17,230
|
15,457
|
13,348
|
|
Total
|
$138,091
|
$132,506
|
$122,879
|
78
Export sales from the United States to unaffiliated customers amounted to approximately $151.1 million, $149.8 million and $140.5 million in fiscal years 2012, 2011, and 2010, respectively. The pretax income for consolidated operations outside the United States was approximately $171.3 million, $162.8 million and $133.1 million in 2012, 2011, and 2010, respectively.
Revenue from external customers based on the location of the customer and long-lived assets by geographic area were as follows (in thousands):
|
Revenue
|
Long-Lived Assets
|
||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
2010
|
||||||
|
United States
|
$893,662
|
$888,833
|
$865,519
|
$664,112
|
$557,263
|
$734,512
|
|||||
|
United Kingdom
|
135,781
|
117,072
|
120,953
|
1,078,704
|
1,113,946
|
889,921
|
|||||
|
Germany
|
88,314
|
91,502
|
91,954
|
133,078
|
146,037
|
132,783
|
|||||
|
Asia
|
251,360
|
242,177
|
234,585
|
8,506
|
7,239
|
3,454
|
|||||
|
Australia
|
81,150
|
78,722
|
79,194
|
61,092
|
64,722
|
57,447
|
|||||
|
Canada
|
74,797
|
79,227
|
70,566
|
5,860
|
5,924
|
5,635
|
|||||
|
Other Countries
|
257,678
|
245,018
|
236,291
|
-
|
-
|
-
|
|||||
|
Total
|
$1,782,742
|
$1,742,551
|
$1,699,062
|
$1,951,352
|
$1,895,131
|
$1,823,752
|
|||||
Payments Related to Tax Audits in Germany
In fiscal year 2003
, the Company merged several of its German subsidiaries into a new operating entity which enabled the Company to increase (“step-up”) the tax deductible net asset basis of the merged subsidiaries to fair market value. The expected tax benefits to be derived from the step-up are approximately 50 million euros claimed as amortization over 15 years beginning in fiscal year 2003. The Company’s management and its advisors believe that it is “more likely than not” to successfully defend that the tax treatment was proper and in accordance with German tax regulations. The circumstances are not unique to the Company.
As part of its routine tax audit process, the German tax authorities notified the Company in May 2012, they are challenging the Company’s tax position with respect to the amortization of certain stepped-up assets.
In June 2012, the Company made a 24 million euro deposit related to amortization claimed on certain “stepped-up” assets through fiscal year 2007. Under German tax law, the Company must pay all contested taxes and the related interest to have the right to defend its position challenged by authorities. The Company expects that it will be required to deposit additional amounts up to 33 million euros plus interest in future periods until the issue is resolved. The challenge is expected to ultimately be decided by a court and could take several years to reach resolution. If the Company is successful, as expected, all funds will be returned with 6% simple interest, based on current German legislation.
Planned Fiscal year 2013 Restructuring Initiatives
Due to
the Company’s ongoing transition and transformation to digital
products and services
, we have identified certain activities that will
either
be
discontinued
, outsourced, or relocated to a lower cost region.
As a result, the Company will record a restructuring charge of approximately $4.5 million in the first quarter of fiscal year 2013 for redundancy and related separation benefits. These charges are expected to be fully recovered within 18 months.
79
Supplementary Financial Information
Results By Quarter (Unaudited)
|
Dollars in millions, except per share data
|
||||||||
|
2012
|
2011
|
|||||||
|
Revenue
|
||||||||
|
First Quarter
|
$
|
430.1
|
$
|
407.9
|
||||
|
Second Quarter
|
447.0
|
441.8
|
||||||
|
Third Quarter
|
451.1
|
447.9
|
||||||
|
Fourth Quarter
|
454.5
|
445.0
|
||||||
|
Fiscal Year
|
$
|
1,782.7
|
$
|
1,742.6
|
||||
|
Gross Profit
|
||||||||
|
First Quarter
|
$
|
300.4
|
$
|
282.7
|
||||
|
Second Quarter
|
314.3
|
302.3
|
||||||
|
Third Quarter
|
309.0
|
309.9
|
||||||
|
Fourth Quarter
|
315.6
|
308.6
|
||||||
|
Fiscal Year
|
$
|
1,239.3
|
$
|
1,203.5
|
||||
|
Operating Income
|
||||||||
|
First Quarter
|
$
|
60.2
|
$
|
63.1
|
||||
|
Second Quarter
|
72.0
|
77.7
|
||||||
|
Third Quarter (c)
|
78.5
|
69.7
|
||||||
|
Fourth Quarter
|
69.7
|
37.6
|
||||||
|
Fiscal Year
|
$
|
280.4
|
$
|
248.1
|
||||
|
Net Income
|
||||||||
|
First Quarter (a)
|
$
|
50.8
|
$
|
44.0
|
||||
|
Second Quarter
|
50.8
|
53.7
|
||||||
|
Third Quarter (b,c)
|
62.9
|
45.6
|
||||||
|
Fourth Quarter
|
48.2
|
28.6
|
||||||
|
Fiscal Year
|
$
|
212.7
|
$
|
171.9
|
||||
|
2012
|
2011
|
|||||||
|
Income Per Share
|
Diluted
|
Basic
|
Diluted
|
Basic
|
||||
|
First Quarter (a)
|
$
|
0.82
|
$
|
0.84
|
$
|
0.72
|
$
|
0.74
|
|
Second Quarter
|
0.83
|
0.84
|
0.88
|
0.89
|
||||
|
Third Quarter (b,c)
|
1.03
|
1.05
|
0.74
|
0.76
|
||||
|
Fourth Quarter
|
0.80
|
0.81
|
0.46
|
0.47
|
||||
|
Fiscal Year
|
$
|
3.47
|
$
|
3.53
|
$
|
2.80
|
$
|
2.86
|
|
(a)
|
In the first quarters of fiscal years 2012 and 2011, the Company recorded non-cash deferred tax benefits of $8.8 million, or $0.14 per diluted share, and $4.2 million, or $0.07 per diluted share, respectively, principally associated with new tax legislation enacted in the U.K. that reduced the U.K. statutory income tax rates by 2% and 1%, respectively. The benefits recognized by the Company reflect the remeasurement of all applicable U.K. deferred tax balances to the new income tax rates as of April 1, 2012 and 2011, respectively.
|
|
(b)
|
In the third quarter of fiscal year 2012, the Company recorded a $7.5 million tax benefit, or $0.12 per diluted share, related to the reversal of an income tax reserve recorded in conjunction with the Blackwell acquisition in fiscal year 2007.
|
|
(c)
|
In the third quarter of fiscal year 2011, the Company recorded a $9.3 million bad debt provision ($6.0 million after taxes), or $0.10 per diluted share, related to the Company’s customer, Borders Group, Inc. (“Borders”). On February 16, 2011, Borders filed a petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy code.
|
80
Schedule II
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 30, 2012, 2011, AND 2010
(Dollars in thousands)
|
Additions/ (Deductions)
|
||||
|
Description
|
Balance at Beginning of Period
|
Charged to
Cost &
Expenses
|
Deductions From Reserves
(2)
|
Balance at End of Period
|
|
Year Ended April 30, 2012
|
||||
|
Allowance for Sales Returns
(1)
|
$48,909
|
$82,901
|
$96,037
|
$35,773
|
|
Allowance for Doubtful Accounts
|
$19,642
|
$2,111
|
$14,903
|
$6,850
|
|
Allowance for Inventory Obsolescence
|
$36,917
|
$23,074
|
$26,059
|
$33,932
|
|
Year Ended April 30, 2011
|
||||
|
Allowance for Sales Returns
(1)
|
$55,311
|
$96,841
|
$103,243
|
$48,909
|
|
Allowance for Doubtful Accounts
|
$6,859
|
$13,989
|
$1,206
|
$19,642
|
|
Allowance for Inventory Obsolescence
|
$39,674
|
$19,216
|
$21,973
|
$36,917
|
|
Year Ended April 30, 2010
|
||||
|
Allowance for Sales Returns
(1)
|
$55,207
|
$102,395
|
$102,291
|
$55,311
|
|
Allowance for Doubtful Accounts
|
$5,655
|
$3,177
|
$1,973
|
$6,859
|
|
Allowance for Inventory Obsolescence
|
$36,329
|
$28,699
|
$25,354
|
$39,674
|
|
|
(1)
|
Allowance for sales returns represents anticipated returns net of a recovery 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 reduction of accounts receivable with corresponding increases in Inventory and a reduction in Accounts and royalties payable (See Note 2).
|
|
|
(2)
|
Deductions from reserves include foreign exchange translation adjustments and accounts written off, less recoveries.
|
81
None
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 have concluded that the Company’s disclosure controls and procedures provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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, 2012.
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, 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 fiscal year 2012.
None
The name, age and background of each of the directors nominated for election are contained under the caption “Election of Directors” in the Proxy Statement for our 2012 Annual Meeting of Shareholders (“2012 Proxy Statement”) and are incorporated herein by reference.
Information on the audit committee financial experts is contained in the 2012 Proxy Statement under the caption “Report of the Audit Committee” and is incorporated herein by reference.
82
Information on the Audit Committee Charter is contained in the 2012 Proxy Statement under the caption “Committees of the Board of Directors and Certain Other Information concerning the Board”
Information with respect to the Company’s Corporate Governance principles is publicly available on the Company’s Corporate Governance website at
www.wiley.com/WileyCDA/Section/id-301708.html.
Executive Officers
Set forth below are the executive officers of the Company as of April 30, 2012. Each of the officers listed will serve until the next organizational meetings of the Board of Directors of the Company and until each of the respective successors are duly elected and qualified.
PETER BOOTH WILEY
- 69
|
|
September 2002 - Chairman of the Board, John Wiley and Sons, Inc. (Director since 1984)
|
STEPHEN M. SMITH
– 57
|
|
May 2011 - President and Chief Executive Officer, John Wiley and Sons, Inc.
|
|
|
June 2009 - Executive Vice President and Chief Operating Officer – responsible for all publishing, editorial, sales and marketing and business development activities globally.
|
|
|
May 2007 - Senior Vice President, Wiley Europe, Asia and Australia – responsible for all company activities and operations in the world outside North America
|
ELLIS E. COUSENS
– 60
|
|
2001 - Executive Vice President and Chief Financial and Operations Officer – responsible for the Company’s worldwide financial organization, strategic planning and business development, internal audit, information technology, distribution and investor relations.
|
MARK J. ALLIN
– 50
|
|
August 2010 - Senior Vice President, Professional and Trade Publishing – responsible for leading the Company’s global Professional/Trade business.
|
|
|
January 2010 - Vice President and Chief Operating Officer, Professional and Trade – responsible for P/T profitability and marketing operations.
|
|
|
July 2009 - Vice President, Asia/Pacific and International Development – responsible for managing Wiley’s business operations in Asia and Australia.
|
|
|
July 2006 - Managing Director, Wiley Asia – responsible for managing Wiley’s business operations in Asia
|
WILLIAM ARLINGTON
– 63
|
|
1996 - Senior Vice President, Human Resources – responsible for managing the Company’s Global Human Resources organization.
|
JOSEPH S. HEIDER
– 53
|
|
May 2011 - Senior Vice President, Global Education – responsible for leading the Company’s Global Education business.
|
|
|
January 2011 - Senior Vice President, US Higher Education – responsible for leading the Company’s US Higher Education business.
|
|
|
May 2010 - Vice President and Chief Operating Officer, Higher Education – responsible for leading the Company’s US Higher Education Product Development and New Business Development and Production Groups.
|
|
|
October 2000 - Vice President, Product and E-Business Development – responsible for leading the Company’s Higher Education Product and New Business Development Group.
|
83
GARY M. RINCK –
60
|
|
2004 - Senior Vice President, General Counsel – responsible for all of the Company’s legal and corporate governance functions at Wiley.
|
STEVEN J. MIRON
– 51
|
|
May 2010 - Senior Vice President, Scientific, Technical, Medical and Scholarly – responsible for leading the Company’s Scientific, Technical, Medical and Scholarly business.
|
|
|
November 2009 - Chief Operating Officer, Scientific, Technical, Medical and Scholarly business – responsible for the STMS's editorial strategy and operations as well as product marketing.
|
|
|
February 2007 - Vice President and Managing Director, Physical Science – responsible for leading STMS's Physical Sciences business.
|
VINCENT MARZANO –
49
|
|
September 2006 - Vice President, Treasurer – responsible for global treasury operations, insurable risk management, accounts receivable, and credit and collections.
|
EDWARD J. MELANDO
– 56
|
|
2002 - Vice President, Corporate Controller and Chief Accounting Officer – responsible for Financial Reporting, Taxes and the Financial Shared Services.
|
MICHAEL PRESTON
– 44
|
|
February 2009 - Corporate Secretary – responsible for Board administration and compliance with corporate regulatory requirements.
|
|
|
August 2005 - Senior Assistant Corporate Secretary of Sunoco, Inc. – responsible for the governance of the company’s subsidiaries, joint ventures and limited liability companies including Sunoco Logistics Partners, L.P. and Sun Coke entities.
|
Information on compensation of the directors and executive officers is contained in the 2012 Proxy Statement under the captions “Directors’ Compensation” and “Executive Compensation,” respectively, and is incorporated herein by reference.
84
Information on the beneficial ownership reporting for the directors and executive officers is contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” within the “Beneficial Ownership of Directors and Management” section of the 2012 Proxy Statement and is incorporated herein by reference. Information on the beneficial ownership reporting for all other shareholders that own 5% of more of the Company’s Class A or Class B Common Stock is contained under the caption “Voting Securities, Record Date, Principal Holders” in the 2012 Proxy Statement and is incorporated herein by reference.
The following table summarizes the Company’s equity compensation plan information as of April 30, 2012:
|
Plan Category
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
|
Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column
(a) (c)
|
|||
|
Equity compensation plans approved by shareholders
|
5,171,750 (1)
|
$40.74
|
6,599,328
|
|||
|
Equity compensation plans not approved by shareholders
|
-
|
-
|
-
|
|||
|
Total
|
5,171,750
|
$40.74
|
6,599,328
|
|
(1)
|
This amount includes the following awards issued under the 2009 Key Employee Stock Plan:
|
|
·
|
4,130,210 shares issuable upon the exercise of outstanding stock options with a weighted average exercise price of $40.74.
|
|
·
|
1,041,540 non-vested performance-based and other restricted stock awards. Since these awards have no exercise price, they are not included in the weighted average exercise price calculation.
|
Information on related party transactions and the policies and procedures for reviewing and approving related party transactions are contained under the caption “Transactions with Related Persons” within the “Board and Committee Oversight of Risk” section of the 2012 Proxy Statement and are incorporated herein by reference.
Information on director independence is contained under the caption “Director Independence” within the “Board of Directors and Corporate Governance” section of the 2012 Proxy Statement.
Information required by this item is contained in the 2012 Proxy Statement under the caption “Report of the Audit Committee” and is incorporated herein by reference.
85
|
(a)
|
Financial Statements and Schedules are included in the attached index on page 3 and are filed as part of this report
|
|
(b)
|
Reports on Form 8-K
|
|
Earnings release on the fiscal year 2012 results issued on Form 8-K dated June 19, 2012, 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 2007 (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2008).
|
|
10.1
|
Amended and Restated Credit Agreement dated as of November 2, 2011, among the Company and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and Other Lenders Party Hereto (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended October 31, 2011).
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|
10.2
|
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).
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|
10.3
|
2009 Director Stock Plan (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended October 31, 2009).
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10.4
|
2009 Executive Annual Incentive Plan (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended October 31, 2011).
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10.5
|
Amended 2009 Key Employee Stock Plan (Revised September 15, 2011 and incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended October 31, 2011).
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10.6
|
Supplemental Executive Retirement Plan as Amended and Restated effective as of January 1, 2009 (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2010).
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|
10.7
|
Amendments A and B to the Supplemental Executive Retirement Plan as Amended and Restated Effective January 1, 2009 (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended July 31, 2010).
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|
10.8
|
Supplemental Benefit Plan Amended and Restated as of January 1, 2009, including amendments through August 1, 2010 (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended January 31, 2011).
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10.9
|
Deferred Compensation Plan as Amended and Restated effective as of January 1, 2008 (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2010).
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|
10.10
|
Deferred Compensation Plan for Directors’ 2005 & After Compensation (incorporated by reference to the Report on Form 8-K, filed December 21, 2005).
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10.11
|
Form of the Fiscal Year 2013 Qualified Executive Long Term Incentive Plan.
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10.12
|
Form of the Fiscal Year 2013 Qualified Executive Annual Incentive Plan.
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10.13
|
Form of the Fiscal Year 2013 Executive Annual Strategic Milestones Incentive Plan.
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10.14
|
Form of the Fiscal Year 2012 Qualified Executive Long Term Incentive Plan (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2011).
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10.15
|
Form of the Fiscal Year 2012 Qualified Executive Annual Incentive Plan (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended July 31, 2011).
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10.16
|
Form of the Fiscal Year 2012 Executive Annual Strategic Milestones Incentive Plan (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended July 31, 2011).
|
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10.17
|
Form of the Fiscal Year 2011 Qualified Executive Long Term Incentive Plan (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2010).
|
|
10.18
|
Form of the Fiscal Year 2011 Qualified Executive Annual Incentive Plan (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2010).
|
|
10.19
|
Form of the Fiscal Year 2011 Executive Annual Strategic Milestones Incentive Plan (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2010).
|
|
10.20
|
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).
|
|
10.21
|
Schedule of individual officers party to Senior Executive Employment Agreement to Arbitrate dated as of April 29, 2003 (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended October 31, 2009).
|
|
10.22
|
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).
|
|
10.23
|
Schedule of individual officers party to 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-Q for the quarterly period ended October 31, 2009).
|
|
10.24
|
Senior executive Employment Agreement dated as of September 17, 2010 and effective as of May 1, 2011, between Stephen M. Smith and the Company (incorporated by reference to the Company’s Report on Form 8-K dated as of September 22, 2010)
|
|
10.25
|
Senior executive Employment Agreement dated as of December 1, 2008, between Ellis E. Cousens and the Company (incorporated by reference to the Company’s Report on Form 10-Q for the quarterly period ended January 31, 2009).
|
|
10.26
|
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, 2011).
|
|
10.27
|
Senior executive Employment Agreement dated as of May 1, 2010, between Stephen J. Miron and the Company (incorporated by reference to the Company’s Report on Form 10-K for the year ended April 30, 2011).
|
|
10.28
|
Senior executive Employment Agreement dated as of November 1, 2011, between Mark J. Allin and the Company.
|
|
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
87
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)
|
|||
|
Dated: June 26, 2012
|
By:
|
/s/ Stephen M. Smith
|
|
|
Stephen M. Smith
|
|||
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
|
Signatures
|
Titles
|
Dated
|
|||
|
/s/ Stephen M. Smith
|
President and Chief Executive Officer
|
June 26, 2012
|
|||
|
Stephen M. Smith
|
Director
|
||||
|
/s/ Ellis E. Cousens
|
Executive Vice President and
|
June 26, 2012
|
|||
|
Ellis E. Cousens
|
Chief Financial and Operations Officer
|
||||
|
/s/ Edward J. Melando
|
Vice President, Controller and
|
June 26, 2012
|
|||
|
Edward J. Melando
|
Chief Accounting Officer
|
||||
|
/s/ Peter Booth Wiley
|
Director
|
June 26, 2012
|
|||
|
Peter Booth Wiley
|
|||||
|
/s/ Bradford Wiley II
|
Director
|
June 26, 2012
|
|||
|
Bradford Wiley II
|
|||||
|
/s/ Warren J. Baker
|
Director
|
June 26, 2012
|
|||
|
Warren J. Baker
|
|||||
|
/s/ William J. Pesce
|
Director
|
June 26, 2012
|
|||
|
William J. Pesce
|
|||||
|
/s/ William B. Plummer
|
Director
|
June 26, 2012
|
|||
|
William B. Plummer
|
|||||
|
/s/ Kalpana Raina
|
Director
|
June 26, 2012
|
|||
|
Kalpana Raina
|
|||||
|
/s/ Mari J. Baker
|
Director
|
June 26, 2012
|
|||
|
Mari J. Baker
|
|||||
|
/s/ Jean-Lou Chameau
|
Director
|
June 26, 2012
|
|||
|
Jean-Lou Chameau
|
|||||
|
/s/ Mathew S. Kissner
|
Director
|
June 26, 2012
|
|||
|
Mathew S. Kissner
|
|||||
|
/s/ Raymond McDaniel, Jr.
|
Director
|
June 26, 2012
|
|||
|
Raymond McDaniel, Jr.
|
|||||
|
/s/ Eduardo R. Menascé
|
Director
|
June 26, 2012
|
|||
|
Eduardo R. Menascé
|
|||||
|
/s/ Linda Katehi
|
Director
|
June 26, 2012
|
|||
|
Linda Katehi
|
|||||
88
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsPart IIItem 5. Market For The Company S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Business, Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 Description Of BusinessNote 2 - Summary Of Significant Accounting PoliciesNote 3 Reconciliation Of Weighted Average Shares OutstandingNote 4 Inscape AcquisitionNote 5 InventoriesNote 6 Product Development AssetsNote 7 Technology, Property and EquipmentNote 8 - Goodwill and Intangible AssetsNote 9 - Additional Provision For Doubtful Trade AccountNote 10 - Impairment and Restructuring ChargesNote 11 - Income TaxesNote 12 - Debt and Available Credit FacilitiesNote 13 Derivative Instruments and Hedging ActivitiesNote 14 - Commitments and ContingenciesNote 15 - Retirement PlansNote 16 Stock-based CompensationNote 17 - Capital Stock and Changes in Capital AccountsNote 18 - Segment InformationNote 19 Subsequent EventsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules and Reports on Form 8-k