John Wiley & Sons, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2014. The request references 2013 Q4, but the filing is the fiscal 2014 annual report and includes unaudited fourth-quarter results.
Business context
Wiley is a global provider of knowledge and knowledge-enabled services through three segments: Research, Professional Development, and Education. Products include scientific and scholarly journals, books, digital content, online training and assessment, test preparation, WileyPLUS, and online program management services. The Company employed approximately 5,100 full-time-equivalent employees worldwide at year-end.
- Research represented approximately 59% of fiscal 2014 revenue.
- Professional Development represented approximately 20%.
- Education represented approximately 21%.
- Approximately 47% of consolidated revenue was billed in non-U.S. markets.
Financial performance
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $1,775.2 million | $1,760.8 million | Up 1% |
| Gross profit | $1,268.3 million | $1,228.5 million | Up 3% |
| Gross margin | 71.4% | 69.8% | Up 160 basis points |
| Operating income | $206.7 million | $199.4 million | Up 4% |
| Net income | $160.5 million | $144.2 million | Up 11% |
| Diluted EPS | $2.70 | $2.39 | Up 13% |
| Cash provided by operating activities | $348.2 million | $337.0 million | Up $11.2 million |
| Cash and cash equivalents | $486.4 million | $334.1 million | Up $152.2 million |
| Long-term debt | $700.1 million | $673.0 million | Up $27.1 million |
Operating income included $42.7 million of restructuring charges and $4.8 million of impairment charges. The effective tax rate was 17.9%, including a $10.6 million non-cash deferred tax benefit from U.K. tax-rate changes. Excluding specified tax benefits and charges, the effective tax rate declined from 26.2% to 23.3%.
Segment results
- Research: Revenue increased 3% to $1,044.3 million; contribution to profit increased 7% to $307.9 million. Journal subscriptions, digital books, and open access revenue grew, while print books declined.
- Professional Development: Revenue declined 13% to $363.9 million, primarily due to the divestiture of consumer publishing programs and lower print-book revenue. Contribution to profit increased to $20.4 million from $5.4 million as margins benefited from digital products, cost savings, and the absence of prior-year impairment charges.
- Education: Revenue increased 10% to $367.0 million, driven by Deltak, WileyPLUS, digital books, and custom products. Contribution to profit declined 2% to $49.9 million as the Company continued investing in new Deltak programs that were not yet generating revenue.
Cash flow, liquidity, debt, and capital allocation
- Investing cash outflow was $149.3 million, including $54.5 million for acquisitions, $57.6 million for technology, property and equipment, and $40.6 million for composition spending.
- Financing cash outflow was $53.5 million. The Company repurchased 1.25 million shares for $63.4 million and paid $59.0 million of dividends.
- The revolving credit facility was increased to $940 million and matures in November 2016. Approximately $700 million of debt was outstanding, with approximately $253 million of unused borrowing capacity under revolving and other facilities.
- Working capital was $60.1 million, including $385.7 million of deferred subscription revenue collected in advance. Seasonality in journal subscriptions and higher education sales affects liquidity requirements.
- Fiscal 2015 planned spending included approximately $80 million for technology, property and equipment, $45 million for composition, and $110 million for author advances.
Material changes and unusual items
- Revenue growth reflected acquisitions, higher journal subscriptions, digital books, and other digital products, partly offset by the $46 million impact of divested consumer publishing programs and a $50 million decline in print-book revenue.
- The restructuring and reinvestment program generated approximately $46 million of cost savings in fiscal 2014. Cumulative restructuring charges were $67.2 million and management expected the program to be fully recovered by fiscal 2015.
- Fiscal 2014 included a $4.8 million impairment for a terminated internal software-development program. Fiscal 2013 included $30.7 million of impairment charges and a $6.0 million after-tax gain related to divestitures.
- On April 1, 2014, Wiley acquired Profiles International for approximately $48 million. On May 1, 2014, after year-end, Wiley acquired CrossKnowledge for approximately $175 million in cash, financed from existing cash balances.
- The U.S. defined benefit plans were frozen effective June 30, 2013. The consolidated pension liability was approximately $169.3 million at April 30, 2014.
Outlook, risks, and contingencies
Management emphasized continued migration from print publishing to digital products, knowledge-enabled services, online education, training, assessment, and open access. The filing does not provide a clear quantitative fiscal 2015 revenue or earnings forecast.
- Key risks include journal subscription renewals, open-access mandates, digital piracy, changing technology, used and rental textbooks, retailer and subscription-agent concentration, and pressure on print volumes and pricing.
- Foreign exchange remains material: approximately 56% of fiscal 2014 revenue was denominated in U.S. dollars, 28% in British pounds, 9% in euros, and 7% in other currencies.
- Interest-rate exposure exists because the $700.1 million of debt was variable-rate debt. Interest-rate swaps covered $300 million of notional principal at year-end.
- The Company deposited approximately $64.0 million with German tax authorities relating to a disputed tax position and may be required to deposit up to an additional 15 million euros plus interest. Management believes it is more likely than not to prevail.
- Unrecognized tax benefits totaled $23.8 million, and approximately $599 million of accumulated non-U.S. earnings was intended to remain indefinitely reinvested outside the United States.
- Routine litigation was not expected by management to have a material effect. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification checklist
- Verify the sustainability of revenue growth after adjusting for acquisitions, divestitures, foreign exchange, and timing effects in journal-license revenue.
- Assess whether restructuring savings and the planned reinvestment in digital businesses are recurring and sufficient to offset print-book declines.
- Review post-year-end leverage, cash usage, and integration results following the $175 million CrossKnowledge acquisition.
- Monitor Deltak program enrollment, profitability, and the 52 programs under development that were not yet generating revenue.
- Evaluate exposure to subscription-agent liquidity, major book customers, foreign exchange, variable interest rates, and refinancing due in fiscal 2017.
- Follow the German tax dispute, related deposits, and the potential effect on cash flow and tax assets.