John Wiley & Sons, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2012. The request metadata references “2011 Q4,” but the supplied filing is the fiscal 2012 annual report, including fourth-quarter supplementary results.
Business Context
Wiley provides scientific, technical, medical and scholarly journals, books, databases and digital services; professional and trade books, subscriptions, training and applications; and global educational content and learning tools. Operations span the United States, Europe, Canada, Asia and Australia, with approximately 5,200 full-time-equivalent employees.
- Scientific, Technical, Medical and Scholarly: 58% of fiscal 2012 revenue.
- Professional/Trade: 24% of revenue.
- Global Education: 18% of revenue.
- Approximately 40% of consolidated revenue came from digital products and services, compared with 37% in fiscal 2011.
Financial Performance and Key Metrics
| Metric | Fiscal 2012 | Fiscal 2011 | Change |
|---|---|---|---|
| Revenue | $1,782.7 million | $1,742.6 million | +2%; +1% currency neutral |
| Gross profit | $1,239.3 million | $1,203.5 million | +3% |
| Gross margin | 69.5% | 69.1% | +40 basis points |
| Operating income | $280.4 million | $248.1 million | +13%; +6% excluding foreign exchange and prior-year Borders provision |
| Operating margin | 15.7% | 14.2% | Improved |
| Net income | $212.7 million | $171.9 million | +24% |
| Diluted EPS | $3.47 | $2.80 | +24% |
| Cash flow from operations | $379.6 million | $375.6 million | +$4.0 million |
| Cash and equivalents | $259.8 million | $201.9 million | +$57.9 million |
| Total debt | $475.0 million | $454.2 million | +20.8 million net borrowings |
| Shareholders’ equity | $1,017.6 million | $977.9 million | +$39.7 million |
Interest expense declined to $9.0 million from $17.3 million, reflecting lower rates and average debt. The effective tax rate was 21.8%, versus 25.6% in the prior year; excluding specified tax benefits, the rate was 27.8% versus 27.4%.
Investing cash outflows were $212.1 million, including $92.2 million for acquisitions and $119.9 million for composition, technology, property and equipment. Financing cash outflows were $104.7 million, including $87.1 million for share repurchases and $48.3 million for dividends. The quarterly dividend increased to $0.20 per share from $0.16.
Segment Results and Material Changes
- STMS: Revenue increased 4% to $1,040.7 million, or 2% currency neutral. Direct contribution increased 6% to $452.3 million, and the direct contribution margin improved to 43.5% from 42.5%. Digital revenue represented 61% of segment revenue.
- Professional/Trade: Revenue declined 1% to $433.7 million. Book revenue fell 3% currency neutral, affected by Borders-related disruption, weak economic conditions and reduced print shelf space. Direct contribution increased 17% to $111.9 million, aided by cost control and the absence of the prior-year Borders provision. Digital revenue rose to 15% of segment revenue from 10%; eBook sales increased approximately 70% to $40 million.
- Global Education: Revenue increased 1% reported but declined 1% currency neutral to $308.4 million. Print book revenue declined, while non-traditional and digital content increased 5%; eBook revenue grew 36% to approximately $17 million. Direct contribution increased 3% to $104.2 million.
- Inscape acquisition: Wiley acquired Inscape Holdings in February 2012 for approximately $85 million in cash, net of cash acquired. Inscape generated approximately $20 million of annual revenue before acquisition and expanded Wiley’s digital workplace learning and assessment capabilities.
- Potential divestiture: Wiley announced plans to explore the sale of consumer print and digital assets generating approximately $80 million of fiscal 2012 revenue and approximately $6 million of direct contribution before shared-service expenses.
- Debt refinancing: The company replaced its prior facilities with a $700 million five-year senior revolving credit facility. Approximately $235 million remained unused at April 30, 2012, and the facility matures in fiscal 2017.
Liquidity, Debt and Outlook
Management stated that operating cash flow, cash balances, available credit and access to debt financing should meet operating, investing and financing needs for the foreseeable future. Negative working capital primarily reflects $342.0 million of subscription revenue collected in advance and deferred until content is delivered.
- Projected fiscal 2013 spending: approximately $85 million for technology, property and equipment; $55 million for composition; and $110 million for author advances.
- Fiscal 2013 employer pension contributions are expected to be approximately $20.8 million.
- Management planned a fiscal 2013 restructuring charge of approximately $4.5 million in the first quarter related to activities being discontinued, outsourced or relocated; the company expected recovery within 18 months.
Risks, Contingencies and Unusual Items
- Fiscal 2012 net income benefited from an $8.8 million non-cash U.K. deferred-tax benefit and a $7.5 million release of a tax reserve related to the Blackwell acquisition.
- Fiscal 2011 included a $9.3 million pre-tax bad-debt provision related to Borders, which filed for bankruptcy protection.
- German tax authorities challenged the company’s tax treatment of stepped-up German assets. Wiley deposited €24 million in June 2012 and expects to deposit up to an additional €33 million plus interest while the matter is resolved. Management believes its position is more likely than not to prevail.
- Wiley had approximately $24.3 million of unrecognized tax benefits at year-end, although it did not expect significant changes within the following 12 months.
- Defined benefit pension plans were underfunded; the reported pension liability was approximately $149.4 million, and funded status sensitivity is material to earnings and liabilities.
- Key operating risks include foreign exchange, interest rates, journal renewal rates, subscription-agent liquidity, retailer and wholesaler concentration, digital piracy, technology failures or data breaches, intellectual-property protection, textbook rentals and used books, open-access mandates, economic conditions and acquisition integration.
- Iran-related trade receivables totaled approximately $2.0 million and may be affected by sanctions and collection uncertainty.
Most Important Facts to Verify
- Whether revenue and operating-income growth can continue after adjusting for favorable foreign exchange and the prior-year Borders charge.
- The recurring earnings impact after excluding the $16.3 million of fiscal 2012 tax benefits.
- Progress and profitability of the Inscape acquisition and any eventual consumer-asset divestitures.
- Compliance with leverage and interest-coverage covenants and the company’s ability to manage $475 million of variable-rate debt.
- Cash requirements and potential recovery timing related to the German tax audit deposits.
- Trends in STMS journal renewals, digital adoption, Global Education enrollment and Professional/Trade print demand.
- The effect of pension funding requirements, foreign currency movements and planned technology and restructuring spending on future free cash flow.