John Wiley & Sons, Inc. — Form 10-K Summary
Business Context and Reporting Period
This annual report covers the fiscal year ended April 30, 2015, including fourth-quarter results. Wiley is a global provider of research, professional development, and education content and knowledge-enabled services. Its principal segments are Research, Professional Development, and Education. Operations span the United States, Europe, Asia, Australia, and Canada; approximately 4,900 employees were reported at year-end.
Financial Performance and Key Metrics
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Revenue | $1,822.4 million | $1,775.2 million | +3%; +4% excluding foreign exchange |
| Gross profit margin | 72.6% | 71.4% | +120 basis points |
| Operating income | $237.7 million | $206.7 million | +15% |
| Net income | $176.9 million | $160.5 million | +10% |
| Diluted EPS | $2.97 | $2.70 | +10% |
| Cash flow from operations | $355.1 million | $348.2 million | +$6.9 million |
| Cash and equivalents | $457.4 million | $486.4 million | -$28.9 million |
| Total debt | $750.1 million | $700.1 million | +$50.0 million |
Cost of sales declined to $499.7 million, while operating and administrative expenses increased to $1,005.0 million. Operating income included $28.8 million of restructuring charges; no impairment charge was recorded in FY2015. The effective tax rate was 21.6%, compared with 17.9% in FY2014, including a non-recurring fourth-quarter tax benefit of $3.1 million. The company reported a $180.2 million foreign-currency translation loss in other comprehensive income.
- Research: Revenue was $1,040.8 million, essentially flat reported and up 2% excluding foreign exchange. Contribution to profit increased to $315.8 million, with the margin rising to 30.3%.
- Professional Development: Revenue increased 12% to $407.0 million, driven primarily by CrossKnowledge and Profiles. Contribution to profit rose 72% to $38.1 million, although book revenue declined.
- Education: Revenue increased 2% to $374.6 million, led by Deltak, custom products, WileyPLUS, and digital books. Contribution to profit declined 3% to $46.2 million as the company continued investing in Deltak programs.
Cash Flow, Debt, Liquidity, and Capital Allocation
Operating cash flow of $355.1 million exceeded net income. Investing cash outflow was $279.7 million, including approximately $166 million for the CrossKnowledge acquisition, $69.1 million for technology, property and equipment, and $39.4 million for composition spending. Financing cash outflow was $61.0 million.
Wiley had approximately $302.9 million of unused borrowing capacity under total available lines of credit of approximately $1,053.0 million. The principal $940 million revolving credit facility matures in fiscal 2017; the company was in compliance with its leverage and interest-coverage covenants. Two additional $50 million 364-day facilities were fully drawn at year-end. Approximately $411.6 million of cash was held outside the United States.
The company repurchased 1.1 million shares for $62.0 million and increased its quarterly dividend to $0.29 per share, resulting in annual dividends of $1.16 per share. Fiscal 2016 planned spending was approximately $110 million for technology, property and equipment, $38 million for composition, and $100 million for author advances.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected $42 million from CrossKnowledge, $21 million from Profiles, growth in Education solutions, and a $10 million individually large journal backfile license. These gains were partly offset by a $46 million decline in print book revenue.
- Gross margin benefited from outsourcing and procurement savings and increased digital mix.
- Restructuring charges declined from $42.7 million to $28.8 million. Cumulative charges under the restructuring and reinvestment program reached $96.0 million and were expected to be fully recovered by April 30, 2016.
- CrossKnowledge contributed $42.0 million of revenue but a $5.1 million operating loss, including $4.6 million of acquisition amortization.
- The company expanded its alternative time-based digital journal license model. It estimated that approximately $35 million of revenue and $0.35 of diluted EPS would shift from fiscal 2016 to fiscal 2017, without affecting free cash flow.
- Foreign exchange materially affected reported results, equity, and international asset values; approximately 45% of revenue was denominated in non-U.S. currencies on an equivalent U.S. dollar basis.
Guidance, Outlook, Risks, and Unusual Items
Management stated that operating cash flow, cash balances, credit facilities, and access to debt financing should be adequate for foreseeable operating, investing, and financing needs. The filing does not provide a consolidated revenue or earnings forecast for fiscal 2016.
- Key strategic priorities are digital transformation, expansion of knowledge-enabled services, growth in online education and professional talent solutions, and realization of restructuring savings.
- Principal risks include journal renewal rates, subscription-agent liquidity, digital disruption, used and rental textbooks, retailer and wholesaler concentration, piracy and intellectual-property protection, cybersecurity, ERP implementation, foreign exchange, interest rates, tax audits, acquisitions, and goodwill or intangible-asset impairment.
- Swets Information Services declared bankruptcy. Wiley expected approximately $5 million of calendar-year 2015 journal subscription revenue impact, although no material FY2015 financial-statement impact was reported.
- The company had $962.4 million of goodwill and $917.6 million of intangible assets, creating exposure to impairment if operating performance or projections deteriorate.
- German tax authorities challenged the company’s treatment of stepped-up assets. Deposits and accrued interest totaled $57.1 million at year-end; the company had deposited €48 million through April 30, 2015 and could be required to deposit up to an additional €10 million plus interest. Management expected to prevail but was appealing an unfavorable local court decision.
- Routine litigation was not expected by management to have a material effect. Contractual obligations totaled $1.407 billion, including $750.1 million of debt, $341.7 million of leases, and $223.5 million of minimum royalty obligations.
Important Facts for Investors to Verify
- Reconcile reported growth with acquisition contributions, foreign-exchange effects, the large journal backfile license, and declining print-book revenue.
- Assess whether CrossKnowledge and other acquisitions achieve expected profitability after acquisition amortization and integration costs.
- Monitor the timing impact of the digital journal licensing-model expansion on FY2016 and FY2017 revenue and EPS.
- Evaluate debt refinancing and covenant capacity as the principal revolving facility approaches its fiscal 2017 maturity.
- Track the German tax appeal, additional required deposits, and potential recovery of the $57.1 million tax deposit.
- Review exposure to goodwill, intangible assets, pension liabilities, foreign exchange, customer concentration, and the multi-year ERP implementation.
- Confirm fiscal 2016 capital-spending and author-advance plans against actual cash flow and seasonal working-capital requirements.