John Wiley & Sons, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2016. The filing is an annual report, not a fiscal 2015 fourth-quarter filing; quarterly data for the fourth quarter is included. Wiley is a global provider of research publishing, professional development, and education content and knowledge-enabled services, with approximately 4,700 full-time-equivalent employees.
Financial Performance and Position
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Revenue | $1,727.0 million | $1,822.4 million | Down 5%; down 2% excluding foreign exchange |
| Gross profit | $1,261.1 million | $1,322.8 million | Gross margin increased to 73.0% from 72.6% |
| Operating income | $188.1 million | $237.7 million | Down 21% |
| Net income | $145.8 million | $176.9 million | Down 18% |
| Diluted EPS | $2.48 | $2.97 | Down $0.49 |
| Cash flow from operations | $350.0 million | $355.1 million | Down $5.2 million |
| Cash and equivalents | $363.8 million | $457.4 million | Down $93.6 million |
| Long-term debt | $605.0 million | $650.1 million | Down $45.1 million |
| Total assets | $2,921.1 million | $3,004.2 million | Down $83.1 million |
Free cash flow was not separately identified in the provided filing text. Cash used for investing activities was $151.4 million, including $37.3 million of composition spending and $93.7 million of technology, property and equipment additions. Financing activities used $285.7 million, including debt repayments, dividends, and share repurchases. Net debt declined $51.4 million to $241.2 million.
Working capital was negative $111.1 million, primarily because $426.5 million of deferred subscription revenue was collected in advance. Wiley reported approximately $602 million of unused borrowing capacity and stated that operating cash flow and available credit should meet foreseeable needs. The company had no off-balance-sheet debt.
Segment Results
| Segment | FY2016 Revenue | Change Excluding FX | Contribution to Profit |
|---|---|---|---|
| Research | $965.3 million | Down 3% | $273.0 million, down 10% excluding restructuring and FX effects |
| Professional Development | $404.3 million | Up 2% | $74.5 million, up 84% excluding restructuring and FX effects |
| Education | $357.5 million | Down 2% | $35.9 million, down 18% excluding restructuring and FX effects |
Research was affected by lower print-book revenue and the transition to time-based digital journal subscriptions, which shifted approximately $37 million of revenue from fiscal 2016 into the remainder of calendar 2016 and fiscal 2017 without affecting free cash flow. Professional Development benefited from Corporate Learning, online test preparation, and restructuring savings. Education continued to shift from print textbooks toward digital, custom, WileyPLUS, and online program management products, but declining print textbook sales and higher student recruitment costs reduced profitability.
Material Changes Versus the Prior Period
- Revenue declined primarily because of a $44 million decline in print books, the $37 million journal-subscription timing shift, and unfavorable foreign exchange.
- Operating income and EPS declined despite a higher gross margin, reflecting increased technology and ERP investment, student recruitment costs, employment costs, Corporate Learning investment, and restructuring charges.
- Research journal subscription renewals for calendar 2016 were 1% above calendar 2015 billings on a constant-currency basis, with approximately 95% of targeted business under contract at year-end.
- Professional Development contribution improved substantially as Talent Solutions and Corporate Learning grew and restructuring savings were realized.
- Education print textbook revenue fell 20% on a currency-neutral basis, while WileyPLUS grew 10% and Deltak online program management revenue grew 18%.
- Wiley amended and extended its revolving credit agreement to a $1.1 billion facility maturing in March 2021. Debt outstanding declined from approximately $750.1 million at April 30, 2015 to $605.0 million.
- The company repurchased 1.43 million shares for $70.0 million and paid $69.9 million of cash dividends during fiscal 2016. The quarterly dividend increased to $0.30 per share.
Outlook, Unusual Items, and Risks
Management forecast fiscal 2017 spending of approximately $115 million for technology, property and equipment and $50 million for composition, with approximately $110 million of author advances. Planned technology spending reflects continued ERP implementation and transformation of the Hoboken headquarters.
- Fiscal 2016 included $28.6 million of restructuring charges. Cumulative charges under the restructuring and reinvestment program reached $124.6 million, and management expected the fiscal 2016 charges to be recovered within 18 months.
- Fiscal 2016 included a $5.9 million non-cash deferred tax benefit, or approximately $0.10 per share, from U.K. tax-rate changes. The prior year included a $3.1 million non-recurring tax benefit.
- Wiley faces risks from digitization, declining print formats, used and rental textbooks, retail and wholesaler concentration, journal subscription renewals, open-access mandates, foreign exchange, interest rates, cybersecurity, ERP implementation, outsourcing, acquisitions, intellectual-property protection, and goodwill or intangible-asset impairment.
- Goodwill and intangible assets totaled approximately $951.7 million and $877.0 million, respectively, at April 30, 2016, creating potential exposure to future impairment charges.
- The company had $62.9 million of income-tax deposits related to a German tax dispute and expected that additional deposits of up to €10 million plus interest could be required. Management believed it was more likely than not to prevail.
- Defined benefit pension plans were underfunded, with accrued pension liabilities totaling approximately $229.7 million. Expected employer contributions for fiscal 2017 were approximately $17.9 million.
- Routine litigation and photography-license claims were not considered material by management. Fiscal 2016 revenue and net profit from sales involving Cuba, Sudan, Syria, and Iran were not material; Iran-related revenue and net profit were approximately $2.8 million and $0.7 million.
Investor Verification Priorities
- Verify the effect of the $37 million journal-subscription revenue shift on fiscal 2017 reported revenue and earnings.
- Assess whether Research subscription renewals and open-access developments support stabilization of the largest segment.
- Track Education print-book declines against growth in WileyPLUS, digital products, and Deltak, including the effect of student recruitment spending on margins.
- Monitor ERP implementation costs, fiscal 2017 capital spending, and whether expected restructuring savings are realized.
- Review debt covenant compliance, revolving-credit availability, variable-rate exposure, and the sustainability of dividends and share repurchases.
- Follow the German tax appeal and related deposits, pension funding requirements, and potential tax effects of repatriating foreign earnings.
- Evaluate sensitivity to foreign exchange, customer and subscription-agent concentration, return reserves, and potential goodwill or intangible-asset impairment.