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EX-10.9 - EXHIBIT 10.9 - WILEY JOHN & SONS, INC.exh10.htm
EX-32.2 - EXHIBIT 32.2 - WILEY JOHN & SONS, INC.exh32.htm
EX-31.2 - EXHIBIT 31.2 - WILEY JOHN & SONS, INC.exh31.htm
EX-10.11 - EXHIBIT 10.11 - WILEY JOHN & SONS, INC.exhi10.htm
EX-10.13 - EXHIBIT 10.13 - WILEY JOHN & SONS, INC.exhib10.htm
EX-10.14 - EXHIBIT 10.14 - WILEY JOHN & SONS, INC.exhibi10.htm
EX-23 - EXHIBIT 23 - WILEY JOHN & SONS, INC.exhibit23.htm
EX-31.1 - EXHIBIT 31.1 - WILEY JOHN & SONS, INC.exhibit31.htm
EX-32.1 - EXHIBIT 32.1 - WILEY JOHN & SONS, INC.exhibit32.htm
EX-21 - EXHIBIT 21 - WILEY JOHN & SONS, INC.exhibit21.htm
EX-10.10 - EXHIBIT 10.10 - WILEY JOHN & SONS, INC.exhibit10.htm
EX-10.15 - EXHIBIT 10.15 - WILEY JOHN & SONS, INC.milestonesplanexh10.htm
 


 
 
FORM 10-K/A


SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

[x]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:  April 30, 2010

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)


NEW YORK
 
13-5593032
State or other jurisdiction of incorporation or organization
 
I.R.S. Employer Identification No.
     
     
111 River Street, Hoboken, NJ
 
07030
Address of principal executive offices
 
Zip Code
     
     
 
(201) 748-6000
 
 
Registrant’s telephone number including area code
 
     
     
Securities registered pursuant to Section 12(b) of the Act: Title of each class
 
Name of each exchange on which registered
Class A Common Stock, par value $1.00 per share
 
New York Stock Exchange
Class B Common Stock, par value $1.00 per share
 
New York Stock Exchange
     
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
None
 

 
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer   |X|           Accelerated filer   |    |           Non-accelerated filer   |    |
 
 
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, 2009, was approximately $1,565.6 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, 2010 was 50,533,570 and 9,582,095 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 16, 2010, are incorporated by reference into Part III of this form 10-K.
 
EXPLANATORY STATEMENT
 
Conformed signatures for William J. Pesce, Ellis E. Cousens and Edward J. Melando were added to pages 46, 83 and Exhibits 31.1, 31.2, 32.1 and 32.2.

 
 
2

 

JOHN WILEY AND SONS, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 2010
INDEX


PART I
 
PAGE
ITEM 1.
Business
4
ITEM 1A.
Risk Factors
4-8
ITEM 1B.
Unresolved Staff Comments
8
ITEM 2.
Properties
9
ITEM 3.
Legal Proceedings
9
ITEM 4
[Removed and Reserved]
10
     
PART II
 
 
ITEM 5.
Market for the Company’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
10
ITEM 6.
Selected Financial Data
10
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
10
ITEM 8.
Financial Statements and Supplemental Data
10
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
79
ITEM 9A.
Controls and Procedures
79
ITEM 9B.
Other Information
79
     
PART III
   
ITEM 10.
Directors and Executive Officers of the Registrant
80-81
ITEM 11.
Executive Compensation
81
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
81
ITEM 13.
Certain Relationships and Related Transactions
81
ITEM 14.
Principal Accounting Fees and Services
81
   
81
PART IV
   
ITEM 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
82-84
     
SIGNATURES
 
 

 
 
3

 

PART I

Item 1.
Business
 
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 is a global publisher of print and electronic products, providing content and digital solutions to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, encyclopedias, books, online products and services; professional and consumer books, subscription products, certification and training materials, online applications and websites; and educational materials in all media, including integrated online teaching and learning resources, for undergraduate, graduate and advanced placement 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 professionals, consumers, researchers, students, and educators. The use of technology enables the Company to make its content 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, 2010, the Company employed approximately 5,100 people on a full-time equivalent basis worldwide.
 
Financial Information About Industry Segments
 
The note entitled “Segment Information” of the Notes to Consolidated Financial Statements and the Management’s Discussion and Analysis section of this 10-K, both listed in the attached index, 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 the Management’s Discussion and Analysis section of this 10-K, both listed in the attached index, are incorporated herein by reference.

Item 1A. 
Risk Factors
 
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, 2010 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
 
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.  The Company attempts to moderate the exposure to fluctuations in price by entering into multi-year supply contracts and having alternative suppliers available.  In general, however, any significant increase in the costs of goods and services provided to the Company may adversely affect the Company’s costs of operation.
 
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.
 
The Scientific, Technical, Medical and Scholarly (“STMS”) publishing industry generates much of its revenue from paid customer subscriptions to print and online 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.
 
 
5

 
 
Maintaining the Company’s Reputation
 
Professionals worldwide rely upon many of the Company’s publications to perform their jobs. 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, subscriptions are primarily sourced through independent 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 agent and is remitted to the journal publisher, including the Company, generally prior to the commencement of the subscription. 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 consolidated book and journal revenue and no one agent accounts for more than 10% of total consolidated revenue.
 
The Company’s business is not dependent upon a single customer; however, the book industry is concentrated in national, regional, and online bookstore chains. Although no one book customer accounts for more than 8% of consolidated revenue, the top 10 book customers account for approximately 20% of total consolidated revenue and approximately 45% of accounts receivable, before reserves at April 30, 2010.  Payments for the sale of subscription journals are predominantly collected in advance.
 
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 or Products
 
The Company must continue to invest in technological and other innovations and adapt in order to continue to 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.
 
In July 2010, the Company plans to launch a new online publishing platform Wiley Online Library. Wiley Online Library will host the vast majority of the Company’s online content, replacing the current platform Wiley Interscience. All existing Wiley Interscience content and licensees will be transferred to Wiley Online Library. The new online service will include enhanced discoverability, expanded functionality and a range of new personalization options. The Company has formal plans and procedures to effect the transformation. Any disruption to the online service during implementation or unforeseen issue could adversely impact results and the Company’s reputation.
 
 
6

 
 
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 Higher Education business publishes educational materials for two and four-year colleges and universities, for-profit career colleges, advanced placement classes and secondary schools in Australia.  Due to a growing demand by students for less expensive textbooks, a growing number of college bookstores are offering textbook rental programs to students.  In addition, there are a variety of online national textbook rental companies already offering textbooks on a rental basis. 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 whether such textbook rental programs will have any impact on Wiley results.
 
Interest Rate and Foreign Exchange Risk
 
International-based revenues, as well as our substantial international net assets, expose the Company’s results to foreign currency exchange rate volatility. Fiscal year 2010 revenue was recognized in the following currencies: approximately 55% U.S dollar; 28% British pound sterling; 8% Euro and 9% 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 11 to our consolidated financial statements, Debt and Available Credit Facilities, in this 10-K. Those sections of our 2010 10-K are incorporated 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.
 
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.  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 may entail a relatively higher risk due to political instability, economic volatility, crime, terrorism, corruption, social and ethnic unrest, and other factors.  While sales in these markets do not have a material effect on 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.

 
 
7

 
 
Liquidity and Global Economic Conditions
 
The recent 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 recent and possible future changes in global financial markets and global economic conditions. Similar to other global businesses, we face the potential effects of the 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 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 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.
 

Item 1B.
Unresolved Staff Comments

None

 
 
8

 


Item 2.
Properties
 
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.


Location
Purpose
Owned or Leased
Approx. Sq. Ft.
       
United States:
     
       
New Jersey
Corporate Headquarters
Leased
386,000
       
New Jersey
Warehouse
Leased
380,000
       
New Jersey
Office & Warehouse
Leased
185,000
       
Indiana
Office
Leased
123,000
       
Massachusetts
Office
Leased
43,000
       
California
Office
Leased
38,000
       
Iowa
Office & Warehouse
Owned
27,000
       
International:
     
       
Australia
Office & Warehouse
  Leased
93,000
 
Office
  Leased
33,000
 
Office
 Leased
26,000
       
Canada
Office & Warehouse
Leased
87,000
 
Office
Leased
20,000
       
England
Warehouse
Leased
143,000
 
Warehouse
Leased
85,000
 
Office
Leased
63,000
 
Office
Leased
17,000
 
Office
Owned
49,000
 
Office
Owned
21,000
       
Germany
Office
Leased
29,000
 
Office
Leased
19,000
 
Office
Owned
58,000
       
India
Office & Warehouse
Leased
16,000
       
Singapore
Office & Warehouse
 Leased
67,000
 
Office
 Leased
15,000
       

Item 3.
Legal Proceedings
 
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.

 
9

 
 
Item 4.
[Removed and Reserved]


PART II


Item 5.
Market for the Company’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The Quarterly Share Prices, Dividends, and Related Stockholder Matters and Issuer Purchases of Equity Securities listed in the index on page 11 are incorporated herein by reference.
 
On September 17, 2009, 14,130 shares of restricted stock were granted to the Company's non-employee directors under the Company's 2009 Director Stock Plan. These shares were equal in value to 100 percent of the directors' annual total cash compensation, excluding the additional fees paid to committee chairmen and any expense reimbursements. These awards do not vest until the director retires from the Board of Directors and were made as partial compensation for the recipients’ services as directors. On December 16, 2009, 30,000 shares of restricted stock were granted to William J. Pesce, the Company's President and Chief Executive Officer in recognition of his role in reorganizing the company into three global lines of business and on selecting and developing successors for the three global lines of business. These issuances of shares were not registered under the Securities Act of 1933, as amended (the Securities Act), pursuant to the exemption under Section 4(2) of the Securities Act for transactions not involving any public offering. No underwriters participated in these transactions, and the Company did not receive any proceeds in connection with these transactions.
 
Item 6.
Selected Financial Data

The Selected Financial Data listed in the index on page 11 is incorporated herein by reference.

 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s Discussion and Analysis of Business, Financial Condition and Results of Operations listed in the index on page 11 are incorporated herein by reference.

Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
The information appearing under the caption “Market Risk” in Management’s Discussion and Analysis of Financial Condition and Results of Operations listed in the index on page 11 is incorporated herein by reference.

Item 8.
Financial Statements and Supplemental Data
 
The Financial Statements and Supplemental Data listed in the index on page 11 is incorporated herein by reference.

 
 
10

 

 
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


The following financial statements and information appearing on the pages indicated are filed as part of this report:

 
 
Page(s)
Management’s Discussion and Analysis of Business, Financial Condition and Results of Operations
12-42
Results by Quarter
43
Quarterly Share Prices, Dividends, and Related Stockholder Matters and Issuer Purchases of Equity Securities
44
Selected Financial Data
45
Management’s Report on Internal Control over Financial Reporting
46
Reports of Independent Registered Public Accounting Firm
47-48
Consolidated Statements of Financial Position as of April 30, 2010 and 2009
49
Consolidated Statements of Income for the years ended April 30, 2010, 2009, and 2008
50
Consolidated Statements of Cash Flows for the years ended April 30, 2010, 2009, and 2008
51
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended April 30, 2010, 2009, and 2008
52
Notes to Consolidated Financial Statements
53-77
Schedule II — Valuation and Qualifying Accounts for the years ended April 30, 2010, 2009, and 2008
78

Other schedules are omitted because of the absence of conditions under which they apply or because the information required is included in the Notes to Consolidated Financial Statements.


 
 
11

 


Management’s Discussion and Analysis of Business,
Financial Condition and Results of Operations
 
The Company is a global publisher of print and electronic products, providing content and digital solutions to customers worldwide. Core businesses produce scientific, technical, medical and scholarly journals, encyclopedias,  books, online products and services; professional and consumer books, subscription products, certification and training materials, online applications and websites; and educational materials in all media, notably through WileyPLUS, the Company’s integrated online learning environment, 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 professionals, consumers, researchers, students, and educators.  The use of technology enables the Company to make its content 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 12% over the past five years, including the acquisition of 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 and laboratory manuals. STMS publishing areas include the physical sciences, 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, Singapore, the United Kingdom and the United States. STMS accounted for approximately 58% of total Company revenue in fiscal year 2010 and generated revenue growth at a compound annual rate of 20% over the past five years, including the acquisition of Blackwell in February 2007.  The graph below presents STMS revenue by product type for fiscal year 2010:
 
 
STMS Graph
 
 
12

 
 
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. The Company publishes the journals of prestigious societies, including the American Cancer Society, 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. 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.
 
STMS is a leading provider of evidence-based medicine (EBM). The Cochrane Collaboration database, 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.
 
In late July 2010, the Company plans to launch Wiley Online Library, which will host the world’s broadest and deepest multidisciplinary collection of online resources covering life, health and physical sciences, medicine, humanities and social science. Built on the latest technology and designed with extensive input from scholars around the world, Wiley Online Library will deliver seamless integrated access to over 4 million articles from 1,500 journals, 8,000 books, and hundreds of reference works, laboratory protocols and databases from John Wiley & Sons and key imprints including Wiley-Blackwell, Wiley-VCH and Jossey-Bass. Featuring a clean and simple interface, this new online service will combine intuitive navigation, enhanced discoverability, expanded functionalities and a range of personalization options. Wiley Online Library will completely replace Wiley InterScience, the Company’s current online publishing platform for its scientific, technical, medical and scholarly content, previously introduced in 1999. All existing Wiley InterScience content and licensees will be transferred to the new site to enable seamless access for users and subscribers.
 
Access to Wiley Online Library and Wiley InterScience is sold through licenses with institutional 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 and Wiley InterScience take 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 2008, the Company introduced its open access business model, OnlineOpen. Under this open access business model, the author, the author's funding agency, or the author's institution pays a fee to ensure that an article is made available globally via Wiley InterScience to all non-subscribers including the general public upon publication. The article is also deposited in the funding agency's preferred repository. In return for the service fee, the Company provides its customary publishing, editing and peer review and technology services.
 
 
13

 
 
In 2005, the Company began a program to digitize its entire historical journal content, dating back to the 1800s.  The Company’s digitization of legacy content is designed to improve the research pathway and ensure content discovery is as seamless and efficient as possible.  The backfile collection, which is available online through Wiley InterScience, spans three centuries of scientific research and comprise over 13.6 million pages – one of the largest archives of its kind issued by a single publisher. As of April 30, 2010 all of Wiley’s and Blackwell’s existing journal content is digitized and made available to customers.
 
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 and out-sourcing 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 functions, in addition to certain customer support activities, have been off-shored as of the end of fiscal year 2010, with central marketing roles expected to be transferred during fiscal year 2011.  In addition to cost savings, the off-shoring and out-sourcing of these functions has enabled the Company to focus its resources on value-added activities, such as process and service enhancements.
 
Significant Acquisitions: In February 2007, the Company acquired Blackwell Publishing (Holdings) Ltd. (“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.  Headquartered in Oxford, England, Blackwell also maintained publishing locations in the United States, Asia, Australia, Denmark and Germany. Approximately 50% of Blackwell’s annual revenue was derived from the United States. Blackwell employed approximately 1,000 individuals worldwide with just over half located in the United Kingdom.  The acquisition of Blackwell enhanced Wiley’s global position as a provider of content and services, expanded and added diversity to the journal portfolio, increased both print and online advertising revenue and added more professional society relationships.
 
Professional/Trade:
 
The Company’s Professional/Trade business acquires, develops and publishes books, subscription products and information services in all media, in the subject areas of business, technology, architecture, cooking, psychology, education, travel, health, religion, consumer reference, pets 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, Singapore, the United Kingdom and the United States. Professional/Trade publishing accounted for approximately 25% of total Company revenue in fiscal year 2010 and generated revenue growth at a compound annual rate of 3% over the past five years.  The graph below presents P/T revenue by product type for fiscal year 2010:
 
PT Graph
 
 
 
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Key revenue growth strategies of the Professional/Trade business include adding value to its content, developing its leading brands and franchises, and executing strategic acquisitions. The Company’s leading Professional/Trade brands include the For Dummies series, the Frommer’s and Unofficial Guide travel series, the Bible and Visual technology series, the CliffsNotes study guides, Webster’s New World dictionaries, and Betty Crocker and Weight Watchers cookbooks.
 
Publishing alliances and franchise products are also 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 General Mills, the Culinary Institute of America, Bloomberg Press, the American Institute of Architects, the Graduate Management Admission Council, the Leader to Leader Institute, Fisher Investments, Meredith Corporation and Weight Watchers, among many others.
 
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.
 
Higher Education:
 
The Company publishes educational materials in all media, for two and four-year colleges and universities, for-profit career colleges, advanced placement classes and secondary schools in Australia. Higher Education products focus on courses in business and accounting, sciences, engineering, computer science, mathematics, statistics, geography, hospitality and the culinary arts, education, psychology and modern languages.
 
Higher Education customers include undergraduate, graduate, and advanced placement students, educators, and lifelong learners worldwide as well as secondary school students in Australia. Product is delivered online and in print, principally through college bookstores, online booksellers, and websites. Higher Education accounted for approximately 17% of total Company revenue in fiscal year 2010 and generated revenue growth at a compound annual rate of 6% over the past five years.
 
Higher Education’s mission is to help teachers teach and students learn. Our strategy is to provide value-added quality materials and services through textbooks, supplemental study aids, course and homework management tools and more, in print and electronic formats. The Higher Education website offers online learning materials with links to thousands of companion sub-sites to support and supplement textbooks.

 
 
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Higher Education delivers high-quality online learning materials that offer more opportunities for customization and accommodate diverse learning styles. A prime example is WileyPLUS, the Company’s integrated online learning environment focused on both teaching and learning. By offering an electronic version of a text along with additional integrated materials, custom content provided by the instructor, and administrative tools, WileyPLUS supports a full range of course-oriented activities, including online planning, presentations, study, homework, and testing. The graph below presents global Higher Education revenue by product type for fiscal year 2010:
 
HE Graph

The Company also provides the services of the Wiley Faculty Network, a peer-to-peer network of faculty/professors supporting the use of online course material tools and discipline-specific software in the classroom. The Company believes this unique, reliable, and accessible service gives the Company a competitive advantage.
 
Higher Education is also leveraging the internet in its sales and marketing efforts.  The internet enhances the Company’s ability to have direct contact with students and faculty at universities worldwide through the use of interactive electronic brochures and e-mail campaigns.
 
Publishing relationships are key to Higher Education’s strategy. The ability to bring Wiley’s product development, sales, marketing, distribution and technology with a partner’s content and/or brand name has contributed to the Company’s success. Alliance partners include Microsoft and National Geographic.
 
Publishing Operations
 
Journal Products:
 
The Company now publishes over 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 sale of publishing rights, journal reprints and individual article sales accounted for approximately 49% of the Company’s consolidated fiscal year 2010 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 contract.
 
Societies that sponsor or own such journals generally receive a royalty and/or other consideration. The Company may procur 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 journal articles 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 grantholder to make articles (either the published version or an earlier unedited version) available free of charge to the public, typically after an embargo period.  The Company provides various services for a fee to enable the grantholder to comply.
 
 
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The Company sells journal subscriptions directly through 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, WileyInterScience. The Company plans to launch Wiley Online Library in late July 2010 which will replace WileyInterscience. 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 2010 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 and its anticipated potential profitability. 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 three to five years, if warranted, and to revise other titles as appropriate. Subscription-based products are updated more frequently on a regular schedule. Approximately 30% of the Company’s fiscal year 2010 U.S. book-publishing revenue was from titles published or revised in the current fiscal year.
 
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.
 
 
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Adopted textbooks, related supplementary material, and online products such as WileyPLUS, are sold primarily to bookstores, including online bookstores, serving 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 for their services. The Company purchases its paper from independent suppliers and printers. The fiscal year 2010 weighted average U.S. paper prices decreased approximately 8% from fiscal year 2009. Approximately 64% 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 InterScience, WileyPLUS and other platforms, and in eBook formats 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 electronic technology products 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 over the next several years.
 
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 electronic uses of its content.
 
Advertising Revenue:
 
The Company generates advertising revenue from print and online journal subscription products; controlled circulation magazines which are issued free to a specific target audience; its online publishing platforms, Wiley Online Library and Wiley Interscience; and the websites of its consumer brands, including Frommers.com, Dummies.com and Cliffsnotes.com. These revenues accounted for approximately 3% of the Company’s consolidated fiscal year 2010 revenue.
 
Advertisements are sold by the Company’s 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; 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 platforms; leveraging the brand recognition of its consumer titles in all media; 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).
 
 
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Global Operations
 
The Company’s publications 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 45% of the Company’s consolidated fiscal year 2010 revenue was derived from 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 sell 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 2010 revenue was recognized in the following currencies: approximately 55% U.S dollar; 28% British pound sterling; 8% Euro and 9% other currencies.
 
Competition and Economic Drivers within the Publishing Industry
 
The sectors of the publishing industry in which the Company is engaged are highly 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, online availability of published information, and timely delivery of products to customers.
 
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 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 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 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.
 
 
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Results of Operations
 
Fiscal Year 2010 Summary Results

Revenue for fiscal year 2010 increased 5% to $1,699.1 million, or 4% excluding the favorable impact of foreign exchange. Excluding foreign exchange, Higher Education (“HE”) and Professional/Trade (“P/T”) experienced strong growth, while Scientific, Technical, Medical and Scholarly (“STMS”) was flat with the prior year.

Gross profit margin for fiscal year 2010 of 68.6% was 0.6% higher than prior year, or 0.4% excluding the favorable impact of foreign exchange mainly due to increased sales of higher margin digital products.

Operating and administrative expenses for fiscal year 2010 of $872.2 million were 4% higher than the prior year.  The increase was mainly due to higher accrued performance-based incentive compensation costs; higher planned HE editorial and production costs to support business growth; increased technology spending; and a $2.0 million bankruptcy recovery in the prior year activity. The increases in cost were partially offset by lower distribution costs; less Blackwell integration activity; and cost savings initiatives.

The Company performed a strategic review of certain non-core businesses within the STMS reporting segment. The review led the Company to consider alternatives for GIT Verlag, a business-to-business German-language controlled circulation magazine business, which was acquired by the Company in 2002.  Based on the outlook for the print advertising business in German language publishing, the Company performed an impairment test on the intangible assets related to GIT Verlag. This test resulted in an $11.5 million pre-tax impairment charge in fiscal year 2010. The Company also identified a similar decline in the financial outlook for three smaller business-to-business controlled circulation advertising magazines. An impairment test on the intangible assets associated with those magazines resulted an additional $0.9 million pre-tax impairment charge in fiscal year 2010.  After considering a variety of strategic alternatives for GIT Verlag, the Company implemented a restructuring plan in fiscal year 2010 to reduce certain staffing levels and the number of journals published by GIT Verlag. As a result, the Company recorded a pre-tax restructuring charge of approximately $1.6 million within the STMS reporting segment during fiscal year 2010 for GIT Verlag severance-related costs.
 
The Company recorded severance costs of $1.1 million related to offshoring and outsourcing certain central marketing and content management activities to Singapore and other countries in Asia. These charges are expected to be fully recovered within 18 months from implementation as a result of lower operating expenses. The impairment and restructuring charges described above, totaling $15.1 million, or $0.17 per share, are reflected in the Impairment and Restructuring Charges line item in the Consolidated Statements of Income.
 
Operating income for fiscal year 2010 increased 11% to $242.6 million, or 7% excluding the favorable impact of foreign exchange and the impairment and restructuring charges.  The 7% increase was mainly driven by HE and P/T revenue growth, margin improvement, cost savings initiatives, partially offset by higher performance-based compensation, editorial, production and technology costs to support growth.

Interest expense decreased $16.1 million to $32.3 million.  Lower interest rates contributed approximately $12.1 million towards the improvement, while lower average debt outstanding contributed approximately $4.0 million.  Losses on foreign currency transactions for fiscal years 2010 and 2009 were $10.9 million and $11.8 million, respectively. The foreign currency transaction losses for fiscal year 2010 were primarily due to the revaluation of U.S. dollar cash balances held by the Company’s non-U.S. locations. The losses incurred in fiscal year 2009 were primarily due to the strengthening of the U.S. dollar in the prior year against U.S. dollar third party loans and intercompany payables maintained in non-U.S. locations during that period. Since these amounts were held in U.S. dollars, the transaction loss did not represent an economic loss to the Company. Fiscal year 2009 included a favorable $4.6 million ($0.08 per share) insurance settlement reported as Interest Income and Other.
 
 
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The effective tax rate for fiscal year 2010 was 28.3% compared to 22.0% in the prior year. The effective tax rate for fiscal year 2009 includes the reversal of a previously accrued income tax reserve of approximately $3.2 million ($0.05 per share) due to an income tax settlement with tax authorities in non-U.S. jurisdictions. The Company’s effective tax rate for fiscal year 2009 excluding the reversal was approximately 24.0%. The increase in the effective tax rate excluding the reversal was principally due to lower foreign tax benefits and a non-taxable insurance receipt in the prior year.

Earnings per diluted share for fiscal years 2010 and 2009 was $2.41 and $2.15, respectively, while net income for the same periods was $143.5 million and $128.3 million, respectively. On a currency neutral basis and excluding the impairment and restructuring charges of approximately $0.17 per share from the current year, earnings per diluted share increased 6%. Higher operating income and lower interest expense was partially offset by a prior year insurance receipt ($0.08 per share), a prior year tax reserve reversal ($0.05 per share) and lower foreign tax benefits.

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.

Fiscal Year 2010 Segment Results
 
As of May 1, 2009, the Company transferred management responsibilities and reporting for certain textbooks from the Professional/Trade segment to the Higher Education segment. All prior periods have been restated for comparability. These changes had no impact on the Company’s consolidated revenue, net income or earnings per share.

Scientific, Technical, Medical and Scholarly (STMS):
   
       
        % change
Dollars in thousands
            2010
           2009
       % change
       w/o FX (a)
Revenue
$986,683
$969,184
2%
0%
Direct Contribution
$405,244
$399,156
2%
0%
Contribution Margin
   41.1%
    41.2%
   

(a)  
Adjusted to exclude fiscal year 2010 impairment and restructuring charges of $15.1 million from direct contribution.

Global STMS revenue for fiscal year 2010 increased 2% to $986.7 million, but was flat excluding the favorable impact of foreign exchange. Increased revenue from rights, individual articles and the Cochrane Library, were offset by lower revenue from business-to-business advertising, journal subscriptions (mainly due to production scheduling) and individual member subscriptions. The improvement in rights income principally relates to a legal settlement of approximately $2.0 million.

Direct contribution to profit for fiscal year 2010 increased 2% to $405.2 million, but was flat excluding the $15.1 million asset impairment and restructuring charges recorded in fiscal year 2010 and the favorable impact of foreign exchange. Lower journal production costs, the completion of Blackwell-related integration activities and other cost savings initiatives were offset by increased costs associated with new business and a $2.0 million bad debt recovery in fiscal year 2009. Direct contribution margin declined 10 basis points to 41.1% and was flat with the prior year excluding the favorable impact of foreign exchange and the asset impairment and restructuring charges.
 
 
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Calendar Year 2010 Journals Update
Due to the fact that the majority of the Company’s journal subscriptions are licensed on a calendar year basis, the Company also monitors and analyzes its journal subscription revenue on that basis. As of April 30, 2010, calendar year 2010 journal subscription billings increased 3% to 4% over prior year on a currency neutral basis, with approximately 95% of expected business closed. There was solid growth in Europe, Middle East, and Africa (“EMEA”), Asia-Pacific and Latin America and modest growth in the U.S. and Canada. Licensed journal business now accounts for 71% of the subscription business as compared to 60% at the same time last year. New licenses included journal subscriptions, backfiles, online books and ArticleSelect sales.
 
Journals
Journals revenue for fiscal year 2010 increased 2% to $803.0 million, but was flat excluding the favorable impact of foreign exchange.  Increased revenue from rights, individual articles and the Cochrane Library, were offset by lower revenue from business-to-business advertising, journal subscriptions (mainly due to production scheduling) and individual member subscriptions. The improvement in rights income principally relates to a legal settlement of approximately $2.0 million.
 
Society Journal Activity
·  
31 new signings
·  
90 renewed/extended contracts
·  
2 contracts not renewed
 
Key New Contracts
·  
Journal of Midwifery and Women's Health on behalf of the American College of Nurse Midwives
·  
Australian Journal of Psychology, Australian Psychologist and Clinical Psychologist, the three flagship journals of Australian Psychological Society
·  
Legislative Studies Quarterly on behalf of the Comparative Legislative Research Center at the University of Iowa
·  
Allergy & Rhinology on behalf of the American Academy of Otolaryngic Allergy and the American Rhinologic Society
·  
Thoracic Cancer on behalf of the Tianjin Lung Cancer Institute
·  
The Bulletin of the Institute of Classical Studies (BICS), one of the world’s most prestigious classics journals
·  
Four academic journals of the Royal Pharmaceutical Society of Great Britain, which were previously self-published (Journal of Pharmacy and Pharmacology, International Journal of Pharmacy Practice, Focus on Alternative and Complementary Therapies, and Journal of Pharmaceutical Health Services Research)
·  
Equine Veterinary Journal and Equine Veterinary Education, previously self- published by the British Equine Veterinary Association
·  
Contemporary Accounting Research and Accounting Perspectives, previously self-published by the Canadian Academic Accounting Association
·  
Steel Research International on behalf of the German Steel Makers Association

 
 
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Books and Reference
Books and reference revenue for fiscal year 2010 declined 1% to $172.6 million. The decrease is principally due to the transfer of certain books to HE in the current fiscal year which generated revenue of approximately $3.6 million in fiscal year 2009.  On a currency neutral basis and excluding the effect of the transfer, books and reference revenue increased 2% over prior year mainly due to increased revenue from licensing rights.

Wiley Online Library
In late July 2010, the Company plans to launch Wiley Online Library, which will host one of the world’s broadest and deepest multidisciplinary collection of online resources covering life, health and physical sciences, medicine, humanities and social science. Built on the latest technology and designed with extensive input from scholars around the world, Wiley Online Library will deliver seamless integrated access to over 4 million articles from 1,500 journals, 8,000 books, and hundreds of reference works, laboratory protocols and databases from John Wiley & Sons and key imprints including Wiley-Blackwell, Wiley-VCH and Jossey-Bass. Featuring a clean and simple interface, this new online service will combine intuitive navigation, enhanced discoverability, expanded functionalities and a range of personalization options.  Users will be able to discover, read, download and cite current journal and book content, EarlyView articles, backfiles, related materials and supporting data. Wiley Online Library will completely replace Wiley InterScience, the Company’s current online publishing platform for its scientific, technical, medical and scholarly content, previously introduced in 1999. All existing Wiley InterScience content and licensees will be transferred to the new site to enable seamless access for users and subscribers.
 
Digital Update
·  
Online book revenue grew 44% in fiscal year 2010 to approximately $6 million. There is a growing trend for institutional library customers to purchase digital books. Online books are sold individually or through subscriptions, similar to journal licenses.
·  
Wiley’s Chinese language website launched in April. Designed to enhance customers’ experience with tailored sections for librarians, authors, societies and industry partners, wileychina.com will feature general information about Wiley’s presence in China, as well as specific details about core content of particular interest to the Chinese community. In addition, this site will include hyper-links and cross references to wiley.com, Wiley InterScience (and ultimately Wiley Online Library) and the Press Room, where all local news and events will be highlighted.
·  
The Cochrane Library is now available to more than 650,000 students and faculty at 47 universities in Germany as part of a new agreement with Universitätsbibliothek Johann Christian Senckenberg in Frankfurt.  The agreement allows access for a period of ten years to the Cochrane Library, a collection of regularly updated evidence-based healthcare databases, including the highly regarded Cochrane Systematic Reviews. In addition, a national license agreement in India will provide about 60 million Internet users with access to The Cochrane Library.
·  
In April, Wiley announced that it will extend licensed electronic content to emergency workers, students, faculty and academic institutions affected by a local, national or global natural disaster. Under the Natural Disaster Access Clause, Wiley will allow a licensee to provide affected groups with electronic access to its licensed products via the licensee’s secure network. Such an arrangement was put in place after Hurricane Katrina.
·  
Essential Evidence, a new product added to the online, evidence-based Essential Evidence Plus, was launchedThis resource tool will help clinicians make diagnoses, chart treatment plans and determine prognoses. The product currently features approximately 700 structured medical topics with approximately 100 more in development.

 
 
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New Alliances
·  
A co-publication agreement with Higher Education Press (HEP) in Beijing was signed in the fourth quarter.  HEP is the second largest science and technology publisher in China.
·  
A books co-publishing agreement was signed with The Minerals, Metals & Materials Society. The society is closely affiliated with the American Ceramic Society (ACerS) and ASM International.
·  
An agreement was signed with the Royal Geographical Society for a book series. Wiley also publishes The Royal Geographical Society’s Geographical Journal, Area and Transactions of the Institute of British Geographers.
·  
An agreement was signed with The American Geographical Society to co-publish both the Geographical Review and FOCUS on Geography. Geographical Review is a leading scholarly periodical.
·  
Through a partnership with the Australian Psychological Society, Wiley will publish three flagship journals – Australian Journal of Psychology, Australian Psychologist and Clinical Psychologist.
·  
An agreement was signed with Chemical Industry Press (Beijing, China) to publish a co-branded Wiley-CIP series imprint. The collaboration will focus on a series of English-language advanced textbooks and reference books for a global readership of post-graduates, researchers and practitioners in engineering, materials science and chemistry, with the potential to expand into other areas.
·  
An agreement was signed with Scrivener Publishing, an engineering book publisher, to co-publish and distribute their books globally. The program will publish 15-20 books per year. The target market includes researchers in the technical and applied sciences.
 
Acquisitions/Divestments
·  
Acquired Microcirculation, the journal of The Microcirculatory Society. The haematology/vascular medicine publication is in its sixteenth year.
·  
Acquired the Israel Journal of Chemistry from Laser Pages Publishing Ltd.  Launched in 1951 as the Bulletin of the Research Council of Israel, Section A, it was re-launched in 1963 under its current name.
·  
Sold two journals to Maney Publishing: Cochlear Implants International and Deafness & Education International.
·  
Wiley acquired the publishing rights to Topley & Wilson’s Microbiology and Microbial Infections from Hodder Education. Now in its 10th edition (having been first published in 1929), the 8-volume reference work is prominent in the fields of microbiology and infectious disease.  Wiley will offer it to customers for the first time online in fiscal year 2010.
 
Journal Impact Factors
In July 2009, Wiley announced that 338 of its journals received top 10 rankings in their respective categories in the Thomson ISI® 2008 Journal Citation Report (JCR), a leading evaluator of journal influence and impact.  Journals are ranked using a metric known as an “Impact Factor,” which reflects the frequency that peer-reviewed journals are cited by researchers.  Other highlights include:
 
·  
Wiley is at or near the top of its peers as measured by journal influence and impact.  A total of 949 out of 1,450 Wiley journals were ranked in the JCR, which is up from 926 in the previous report.  Wiley publications achieved thirty #1 rankings within the 227 categories.  The Company’s journals received the highest total Impact Factors of any publisher in 37 categories.
·  
Eight out of the thirty newly-listed Wiley journals are Asia-Pacific publications.  Sixty-three Asia-Pacific journals are currently represented in the JCR, evidence of Wiley’s expanding publishing program in this region.
·  
In chemistry and physical sciences, Angewandte Chemie, a journal of the German Chemical Society, increased its Impact Factor, strengthening its position as the leading chemistry journal that features primary research and review articles.  Medicinal Research Reviews is ranked #1 in its category.  Other #1 ranked journals in the physical sciences include Mass Spectrometry Reviews for the 10th consecutive year; Advanced Synthesis and Catalysis for its 6th year; and Communications on Pure and Applied Mathematics.
 
 
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·  
In technology and engineering, International Journal of Circuit Theory and Applications is the top circuit theory journal. International Journal for Numerical Methods in Engineering is #1 in numerical engineering.
·  
In medical sciences, the journal CA–A Cancer Journal for Clinicians, published on behalf of The American Cancer Society, was awarded the highest Impact Factor among all medical journals.  In dentistry, Periodontology 2000 is ranked #1 for the second year and Journal of Clinical Periodontology has risen to be ranked #2 (from #5 in 2007).  Addiction's Impact Factor increased again and remains #1 in substance abuse in the social science index. Addiction Biology has taken the #1 spot in substance abuse in the science index.  In nursing, Birth continues to rank first.
·  
In life sciences, Aging Cell increased its Impact Factor and is ranked #1 in geriatrics and gerontology.  For the 5th consecutive year, Ecology Letters increased its Impact Factor and remains the highest ranking primary research journal in ecology. Developmental Dynamics remains the #1 journal in anatomy and morphology.
·  
In social sciences and humanities, Wiley published #1 ranked journals in nine categories, including Addiction, Birth: Issues in Perinatal Care, Child Development, Criminology, Journal of Finance, Journal of Communication, Transactions of the Institute of British Geographers and Perspectives on Sexual & Reproductive Health.
 
Professional/Trade (P/T):
   
       
% change
Dollars in thousands
    2010
   2009
  % change
w/o FX
Revenue
$429,988
$403,113
7%
6%
Direct Contribution
$100,196
$89,678
12%
11%
Contribution Margin
23.3%
    22.2%
   

Global P/T revenue for fiscal year 2010 increased 7% to $430.0 million, or 6% excluding the favorable impact of foreign exchange. The revenue growth was driven by higher consumer, business and technology sales and new titles acquired through the Meredith and GMAC agreements. The new agreements contributed approximately $14.4 million to current period results.  North America exhibited the most growth, followed by EMEA.

Direct contribution to profit for fiscal year 2010 increased 12% to $100.2 million, or 11% excluding the favorable impact of foreign exchange. The improvement reflected higher sales volumes and advertising and marketing cost savings, partially offset by higher performance-based incentive compensation. Direct contribution margin improved 110 basis points to 23.3%, or 90 basis points excluding the favorable impact of foreign exchange.
 
Revenue by Category
·  
Business advanced 5%, led by social media and quick-to-market books.
·  
Consumer grew 16%, led by cooking (Meredith, Food Network TV, Weight Watchers) and the GMAC agreement.
·  
Technology was up 4%. Growth was attributed to Sybex certification and virtualization books, and the release of Windows 7.
·  
Psychology grew 15% for the year.
·  
Architecture was down 6% for the year.
·  
Education grew 6% for the year.
 
 
25

 
 
Online Initiatives/eBooks
·  
Fiscal year 2010 ebook revenue increased 93% to approximately $7 million.
·  
Approximately 11,000 eBooks are now available on Kindle.
·  
Frommer’s Unlimited launched Frommer’s destination guides on Canada.com; unveiled destination guides on the UK meta search engine Travelsupermarket; created custom leisure and business events for a high-profile British Airways ad campaign microsite; launched an innovative trip planning tool with Eurostar; and integrated multilingual events content and weather charts into an Air France desktop widget.
·  
eBook agreements were signed with Barnes and Noble (Nook), EBooks.com, Ingram Digital and Scrollmotion (Apple’s preferred eBook vendor).  Existing agreements include Amazon (Kindle), Sony (eReader) and Mobipocket.
·  
P/T launched a CliffsNotes literature note application for the iPhone and iPod Touch, branded CliffsNotes-to-Go, which was produced on a fast-track schedule to coincide with a major Apple promotion.  Five popular classics (The Adventures of Huckleberry Finn, Macbeth, The Scarlet Letter, To Kill a Mockingbird, and Romeo and Juliet) are available in the iTunes App Store.  The apps contain the full content of the books plus audio summaries, interactive character maps, and a user defined “CramPlan” that allows students to access the most important components of the text based on the amount of time they have to study.
·  
Through an alliance with LibreDigital, Wiley now has the capability to sell ebooks in bulk, enabling volume sales in e-only or print plus electronic combinations based on a variety of access models.
 
Digital Advertising/Websites
·  
Cliffsnotes.com advertising revenue in fiscal year 2010 grew by 28% over prior year.
·  
Dummies.com reported an all-time record monthly traffic count of 4 million users in March.

 
New Alliances
·  
Wiley was named the exclusive global publisher of BLOOMBERG® and BLOOMBERG BUSINESSWEEK® branded books to be marketed as “BLOOMBERG PRESS®, a Wiley imprint.”  Wiley intends to publish the content in print, e-book and digital formats.
·  
Wiley has been named an official licensee by The London Organizing Committee of the Olympic Games and Paralympics Games. We will publish 12 books in non-fiction categories including illustrated reference, photographic and architecture and design books, including the official commemorative book.
·  
Publishing agreement signed with Facebook.com to produce “Official” branded Facebook instruction guides, The Definitive Facebook Guides.  The series will be launched in fiscal year 2011.
·  
Wiley-Pfeiffer (HR development and management) signed an agreement with Korean Management Association to deliver products in Korea.
·  
Agreement signed with the Construction Specifications Institute (CSI) to become the publisher of the CSI Professional Practice Guides.  These guides align with CSI’s certification program for Architecture, Engineering and Construction industry professionals.
·  
The Great Place to Work® Institute and Wiley will collaborate on a training package and two books. The Institute has been developing the annual “FORTUNE 100 Best Companies to Work For” list for twenty years and is known around the world for its research-based models and accessible best practices.
·  
The Meredith (Better Homes and Gardens, Food Network TV, etc.) backlist boosted cookbook sales. There were 25 new Meredith books in the lifestyles, pets and education categories published in fiscal year 2010.
·  
Chatelaine, Canada’s #1 women’s magazine, will publish a major cookbook and personal finance guide in partnership with Wiley.
 
 
26

 
 
Notable New Books
Business
·  
Patrick Lencioni, Getting Naked: A Business Fable about Shedding the Three Fears that Sabotage Client Loyalty
·  
Chris Brogan, Trust Agents
·  
Erik Qualman, Social Economics
·  
Jon Gordon, Training Camp
·  
Bill George, Seven lessons for Leading In A Crisis
·  
Brian Halligan, Inbound Marketing
Finance
·  
Harry Markopolis, No One Would Listen
·  
Peter Schiff, LoyaltyCrash Proof 2.0
·  
John Bogle, Common Sense of Mutual Funds, 10th Anniversary Edition
·  
Ben Stein, Little Book of Bulletproof Investing
·  
Christine Richard, Confidence Game
·  
David Faber, And Then The Roof Crashed In
Psychology
·  
Irving Weiner, Handbook of Social Psychology, Fifth Edition
·  
The Corsini Encyclopedia of Psychology, Fourth Edition
·  
Bret A. Moore, The Veterans and Active Duty Military Psychotherapy Treatment Planner
·  
Sue, Counseling the Culturally Diverse, Theory and Practice, Fifth Edition
·  
Dattilo, Therascribe Family Treatment Planner, Second Edition
Consumer
·  
Doug Lemov, Teach Like A Champion
·  
Bob Sehlinger, The Unofficial Guide to Walt Disney World: The Color Companion
·  
John Brady, Hero of the Pacific
·  
Fred Kaplan, 1959, The Year Everything Changed
·  
Brian Leaf, Defining Twilight
·  
Ellie Kreiger, So Easy
·  
Sandra Lee, Weeknight Wonders
·  
Rose Levy Beranbaum, Rose’s Heavenly Cakes
Architecture
·  
Architectural Graphic Standards for Residential Construction
·  
Stein and Reynolds, Mechanical and Electrical Equipment for Buildings , Tenth Edition
·  
Edward Allen, Forms and Forces
·  
Frank Ching, Building Codes Illustrated, Third Edition
Technology
·  
Andy Rathbone, Windows 7 For Dummies
·  
Paul Thurott, Windows 7 Secrets For Dummies
·  
Dan Gookin, Laptops For Dummies
·  
Peter Weverka, Office 2010 All-In-One For Dummies
·  
Scott Lowe, Mastering VMware VSphere4
·  
Daniel Hedengren, Smashing WordPress: Beyond The Blog

Higher Education (HE):
   
     
 
% change
Dollars in thousands
2010
2009
% change
w/o FX
Revenue
$282,391
$239,093
18%
15%
Direct Contribution
$86,212
$66,619
29%
25%
Contribution Margin
30.5%
27.9%
   

Global HE revenue for fiscal year 2010 increased 18% to $282.4 million, or 15% excluding the favorable impact of foreign exchange.  Double-digit growth was experienced in all regions and in nearly every subject category.  The revenue growth includes approximately $3.4 million from books previously reported in STMS and $1.2 million from books previously reported in P/T.  Excluding the effect of these transfers and favorable foreign exchange, HE revenue increased 13%.
 
 
27

 
 
Direct contribution to profit for fiscal year 2010 increased 29% to $86.2 million, or 25% excluding the favorable impact of foreign exchange.  The improvement was driven by the top-line growth and improved margin due to increased sales of digital products, partially offset by higher costs to support business growth and higher performance-based compensation. Direct contribution margin improved 270 basis points to 30.5%, or 230 basis points excluding the favorable impact of foreign exchange.
 
Revenue by Region
·  
Americas grew 16% to $239.0 million.
·  
EMEA revenue increased 13% to $23.5 million.
·  
Asia-Pacific revenue advanced 27% to $60.7 million, or 13% on a currency neutral basis.
 
Revenue by Subject
·  
Business and Accounting exceeded prior year by 21%, driven mainly by a strong accounting frontlist.
·  
Engineering and Computer Science exceeded prior year by 8%. Top textbooks driving the growth include Munson: Fluid Mechanics 6e, Turban: Information Management 7e and Callister: Materials Science 8e.
·  
Mathematics and Statistics surpassed prior year by 27%. Driving the growth over prior year were Hughes Hallett: Calculus 5e, Anton: Calculus 9e, Boyce: Elementary Differential Equations 9e and Young: College Algebra 2e.
·  
Sciences surpassed prior year by 9%. Growth is attributed to Cutnell: Physics 8e, Jenkins: Anatomy and Physiology 2e and Tortora: Introduction to the Human Body 8e.
·  
Social Sciences exceeded prior year by 20%. The textbooks driving the growth include Huffman: Psychology 9e, deBlij: Concepts Geography 14e, Kring: Abnormal Psychology 11e and deBlij: Human Geography 9e.
·  
MOAC revenue exceeded prior year by 29%. The operating systems and server books continue to drive results.
 
WileyPLUS
·  
Global revenue for the full year grew 42% to 11% of global HE sales.
·  
Digital-only sales grew 55% to $10 million, accounting for 36% of WileyPLUS sales.  Digital-only is defined as WileyPLUS standalone (not packaged with a print textbook).
 
New Alliances
·  
Wiley is partnering with Reaction Explorer to bring new capabilities to the online organic chemistry market. Reaction Explorer uses expert system technology to predict the results of arbitrary organic chemistry reactions. By accessing Reaction Explorer through WileyPLUS, students will be able to achieve a higher level of understanding of the intricacies of organic chemistry reactions, syntheses and mechanisms.
·  
National Geographic Society (NGS):  Pilot program signed for custom initiative that will allow customers to choose from over 100 additional pieces of NGS magazine articles and some maps. Customers can combine them with Wiley’s Geosciences books to create a more customized and engaging learning solution for instructors and students.
·  
In May 2009, Wiley announced that it was expanding its alliance with Amazon to offer select Wiley textbooks for sale through the Kindle DX.  A pilot program began in the first quarter.

 
 
28

 

RFID Project
·  
Many of Wiley’s textbooks will now contain embedded Radio Frequency Identification (RFID) tags that will:
·  
Increase bookstore sell-through by reducing the supply of reimported, pirated, hurt and comp copies;
·  
Enhance business intelligence to enforce returns policy such as no-return agreements and returns attempted after our stated returns period;
·  
Improve customer experience by reducing shipping errors. The presence of RFID hardware and systems in Wiley’s distribution centers will enable us to validate the contents of shipments as they are fulfilled, thereby reducing shipping errors and the costs associated with correcting them.
 
Other Developments
·  
Institutional sales, particularly for-profit schools, continued to gain traction.
·  
In India, eight new contracts were signed and ten new books were published as part of the indigenous publishing and adaptation program.
 
Shared Services and Administrative Costs
 
Shared services and administrative costs for fiscal year 2010 increased 4% to $349.1 million including and excluding the effect of foreign exchange. The increase was driven by higher accrued performance-based incentive compensation and higher contractor, software licensing and maintenance costs and depreciation due to increased technology investments including Wiley Online Library. The cost increases were partially offset by lower distribution costs and reduced spending following the completion of Blackwell integration. Technology investments are focused on next generation publishing platforms in HE and STMS and the related content technology, hosting and support.
 
Fiscal Year 2009 Summary Results
 
Revenue for fiscal year 2009 decreased 4% to $1,611.4 million.  Excluding the unfavorable impact of foreign exchange revenue increased 3%.  Growth in STMS journals, including an acquisition accounting adjustment that reduced fiscal year 2008 STMS revenue by approximately $16.7 million, and growth in Higher Education were partially offset by a decline in P/T revenue due to weak market conditions.

Gross profit margin in fiscal year 2009 of 68.0% was 0.2% lower than the prior year as lower P/T sales volume and higher inventory obsolescence and royalty advance provisions were partially offset by favorable product mix and lower production costs in Higher Education.  Operating and administrative expenses for fiscal year 2009 of $839.6 million were 4% lower than the prior year, or increased 1% excluding the favorable impact of foreign exchange. Lower accrued incentive compensation expense and marketing and advertising cost containment programs were more than offset by annual merit increases; higher editorial and distribution costs to support new Higher Education and STMS titles; and higher occupancy, facilities and depreciation costs related to business expansion.

Operating income for fiscal year 2009 decreased 3% to $218.5 million, or improved 11% excluding the unfavorable impact of foreign exchange. The improvement excluding foreign exchange was mainly due to revenue growth, including the acquisition accounting adjustment in fiscal year 2008.  Interest expense decreased $18.3 million to $48.4 million. Lower interest rates contributed approximately $10.8 million towards the improvement, while lower average outstanding debt contributed approximately $7.5 million. Interest income and other increased $0.3 million to $6.2 million principally due to a $4.6 million ($0.08 per diluted share) non-recurring insurance receipt received in fiscal year 2009, partially offset by higher interest income in the prior year. Losses on foreign currency transactions for fiscal year 2009 and 2008 were $11.8 million and $2.9 million, respectively.  The increase in foreign currency transaction losses was mainly due to the strengthening of the U.S. dollar against the British pound sterling on intercompany payables and U.S. dollar third party debt outstanding in the U.K.
 
 
29

 
 
The effective tax rates for fiscal years 2009 and 2008 were 22.0% and 8.7%, respectively. During fiscal year 2008, the Company recorded an $18.7 million tax benefit associated with new tax legislation enacted in the United Kingdom (UK) and Germany that reduced the corporate income tax rates from approximately 30% to 28% and 39% to 29%, respectively.  The benefits recognized by the Company reflect the adjustments required to restate all applicable deferred tax balances at the new income tax rates.  The new tax rates were effective in Germany as of May 1, 2007 and in the UK as of April 1, 2008.  The effective tax rate for fiscal year 2009 was 22.0% compared to 20.2% for fiscal year 2008, excluding the deferred tax benefits described above. The increase was mainly due to lower foreign tax benefits.

Earnings per diluted share and net income for fiscal year 2009 were $2.15 and $128.3 million, respectively.  Reported earnings per diluted share and net income for fiscal year 2008 were $2.49 and $147.5 million, respectively. Adjusted to exclude the non-cash deferred tax benefits described above, earnings per diluted share and net income for fiscal year 2008 were $2.17 and $128.9 million, respectively.  See Non-GAAP Financial Measures described below. Excluding the deferred tax benefits and the effect of foreign exchange transaction and translation losses of approximately $0.50 per share, earnings per share increased 22% to $2.15 per share.

Non-GAAP Financial Measures:  The Company’s management internally evaluates its operating performance excluding unusual and/or nonrecurring events. The Company believes excluding such events provides a more effective and comparable measure of current and future performance. We also believe that excluding the effects of the following tax benefits provides a more balances view of the underlying dynamics of our business.
 
Deferred Tax Benefit on Changes in Statutory Tax Rates
 
The Company recorded an $18.7 million tax benefit  ($15.6 million for Blackwell) associated with new tax legislation enacted in the United Kingdom (U.K.) and Germany that reduced the corporate income tax rates from approximately 30% to 28% and 39% to 29%, respectively.  The benefits recognized by the Company reflect the adjustments required to restate all applicable deferred tax balances at the new income tax rates. These benefits have been adjusted below due to their infrequent non-recurring nature.
 
Since adjusted net income and adjusted earnings per share are not measures calculated in accordance with US GAAP, they should not be considered as a substitute for other US GAAP measures, including net income and earnings per share as indicators of operating performance. Accordingly, adjusted net income and adjusted earnings per diluted share are reconciled below to net income and earnings per share on a US GAAP basis, for fiscal years 2009 and 2008.

 
 
30

 

 
Reconciliation of Non-GAAP Financial Disclosure
 
 
   For the Years
     Ended April 30,
Net Income (in thousands)
          2009
2008
     
As Reported
$128,258
$147,536
     
Deferred Tax Benefit on Changes in Statutory Rates
-
(18,663)
     
Adjusted
$128,258
$128,873
 
 
   For the Years
    Ended April 30,
Earnings per Diluted Share
          2009
2008
     
As Reported
$2.15
$2.49
     
Deferred Tax Benefit on Changes in Statutory Rates
-
(0.31)
     
Adjusted
$2.15
$2.17

 
Fiscal Year 2009 Segment Results

Scientific, Technical, Medical and Scholarly (STMS):
   
       
% change
Dollars in thousands
 2009
 2008
% change
w/o FX
Revenue
$969,184
$975,797
(1%)
9%
Direct Contribution
$399,156
$384,170
4%
14%
Contribution Margin
   41.2%
    39.4%
   

Global STMS revenue for fiscal year 2009 of $969.2 million declined 1% from prior year mainly due to unfavorable foreign exchange. Excluding the unfavorable impact of foreign exchange revenue increased 9%.  Increased revenue from journal subscription renewals, new business, price increases, global rights and STMS books was partially offset by lower sales of backfiles, reprints and custom publishing.  Also contributing to the increase in journal subscriptions was a $16.7 million acquisition accounting adjustment related to Blackwell that reduced revenue in fiscal year 2008. This adjustment contributed 2% to revenue growth excluding foreign exchange.

Direct contribution to profit for fiscal year 2009 grew 4% from prior year to $399.2 million, or 14% excluding the unfavorable effect of foreign exchange. Direct contribution margin improved 180 basis points to 41.2%, or 41.1% excluding the unfavorable impact of foreign exchange, mainly due to the prior year acquisition accounting adjustment, a $2.0 million bad debt recovery and cost containment efforts, partially offset by higher performance compensation and other employment costs and editorial costs due to the addition of more society journals.  Margins on professional society journals are lower than margins earned on Company owned journals.
 
STMS Journals
Journal revenue grew 8% excluding unfavorable foreign exchange and the fiscal year 2008 acquisition accounting adjustment related to Blackwell. All regions exhibited journal sales growth, excluding unfavorable foreign exchange. The performance is mainly attributed to renewals, new business, price increases and the acquisition accounting adjustment in fiscal year 2008. Subscription and pay-per-view revenue was up year-over-year, while backfile revenue fell due to the economic climate, particularly in the US.
 
 
31

 
 
Society Journal Activity
·  
32 New signings
·  
87 Renewed/extended contracts
·  
9 Contracts not renewed
 
Key New Agreements
·  
A new journal launch for 2010 – the Journal of Research Synthesis Methods in association with the Society for Research Synthesis Methodology
·  
Family and Consumer Science Research on behalf of the American Association of Family and Consumer Sciences
·  
Design Management Review and Design Management Journal with the Design Management Institute
·  
The Institute of Development Studies at the University of Sussex, one of Europe’s leading research institutions. The journal, IDS Bulletin, was previously self-published.
·  
The Economic Society of Australia for Economic Papers.
·  
Asian Journal of Endoscopic Surgery.
 
Key Journal Renewals
·  
Economic Journal and Econometrics Journal (Royal Economic Society)
·  
Journal of Accounting Research (Institute of Professional Accounting at the University of Chicago Booth School of Business)
·  
Cancer Science (Japanese Cancer Association)
·  
ANZ Journal of Surgery (Royal Australasian College of Surgeons)
·  
International Journal of Urology (Japanese Urological Association)
·  
Journal of Neuroendocrinology (European Neuroendocrine Association, the British Society for Neuroendocrinology and the International Neuroendocrine Federation)
·  
Therapeutic Aphaeresis and Dialysis (International Society for Aphaeresis, The Japanese Society for Aphaeresis and The Japanese Society for Dialysis Therapy)
·  
Journal of Philosophy of Education (Philosophy of Education Society of Great Britain)

Journal Licenses
Journal licenses, which represent approximately 60% of fiscal year 2009 journal subscription revenue, provide academic, government and corporate customers with online access to multiple journals. During fiscal year 2009, agreements were signed or renewed with universities, library consortia and government agencies in the US, Norway, Japan, China, Brazil, Canada, Greece, Chile, Denmark and India.

STMS Books and References
Book sales and other related income, which account for approximately 17% of fiscal year 2009 STMS revenue, were up 5% excluding unfavorable foreign exchange. The total number of books published increased slightly.  Online book sales rose approximately 20% to $10 million. During the fiscal year, Wiley acquired the Arnold statistics book program from Hodder Education. The acquisition, which includes over 50 titles, complements areas of strength in Wiley’s statistics program, while providing growth opportunities.

Wiley InterScience
Wiley achieved an important milestone in the early part of fiscal year 2009 by migrating online journal content, customers and access licenses from Blackwell’s Synergy platform to Wiley InterScience. The migration included approximately 29,000 customers, over two million licenses and nearly two million journal articles.

 
 
32

 
 
Professional/Trade (P/T):
 
       
% change
Dollars in thousands
2009
2008
% change
w/o FX
Revenue
$403,113
$457,286
(12%)
(9%)
Direct Contribution
$89,678
$130,502
(31%)
(27%)
Contribution Margin
22.2%
28.5%
   

Global P/T revenue for fiscal year 2009 decreased 12% to $403.1 million, or 9% excluding the unfavorable impact of foreign exchange. The decline in revenue was due to a weak retail environment particularly in the U.S., partially offset by modest growth in the European and Canadian markets.  Also affecting the comparison to last year was the termination of a publishing agreement in the culinary/hospitality publishing program.

Direct contribution to profit decreased 31% to $89.7 million, or 27% excluding the unfavorable impact of foreign exchange. Direct contribution margin declined 630 basis points to 22.2%, or 560 basis points excluding the unfavorable impact of foreign exchange. The decline reflects lower sales volume, higher inventory obsolescence and royalty advance provisions and a $2.0 million bad debt recovery in the prior year, partially offset by cost containment efforts in advertising, sales and marketing and lower accrued incentive compensation.

Notable Alliances
·  
GMAC/Official Guide to the GMAT:  Wiley became the official publisher of the Graduate Management Admission Test® (GMAT®) study guides in October 2008.  In March, the 12th edition of the top-selling Official Guide for GMAT Review was released worldwide.  It will be followed by The Official Guide for GMAT Verbal Review and The Official Guide for GMAT Quantitative.
·  
Meredith: In March 2009, as part of its multi-year agreement, Wiley began publishing Better Homes and Garden book titles and other brands such as Family Circle, as well as Food Network TV, Sandra Lee, Rocco DiSpirito and Tyler Florence.
·  
Kindle (Amazon):  Currently, Wiley has over 9,000 P/T books available on the Kindle 2.
·  
General Mills: Wiley and General Mills signed an agreement to renew their publishing partnership.  Under the agreement, Wiley will continue to publish the flagship Betty Crocker “Big Red” cookbook and other cookbooks under the Betty Crocker, Pillsbury and other General Mills brands.
·  
Vancouver Olympic Organizing Committee:  Wiley Canada entered into an agreement with VANOC, becoming the official publication partner of the 2010 Winter Olympic and Paralympics Games in Vancouver/Whistler. In close cooperation with VANOC, Wiley will produce commemorative books, games reports, and custom publications.

Online Initiatives
·  
For the fiscal year, Frommers.com maintained its top position in website traffic by posting 137 million page views and nearly 29 million visits. The results were lower than last year due to the economy.
·  
Launched in November 2008, the new Dummies.com generated a total of 29 million page views by fiscal year-end, a 23% increase over prior year. Eleven million unique visitors represented a 21% increase.  Users are spending 17% more time on content pages. The site now includes 25 topic areas with 250+ pieces of content in each, 950 fully illustrated step-by-step articles, 6,610 articles, and 265 videos.
·  
CliffsNotes.com recorded year-on-year increases of 5% in page views and 21% in unique visitors.
 
 
33

 
 
Notable New Titles
Business:
·  
Lee Bolman: Reframing Organizations, Fourth Edition
·  
Jim Kouzes and Barry Posner: Leadership Challenge, Fourth Edition
·  
GAAP 2009
·  
CPA Exam Set, Thirty-fifth edition, Volumes 1 and 2
·  
Mary Kay Ash: Mary Kay Way
·  
Patrick Lencioni: Three Big Questions for  A Frantic Family
Finance:
·  
JK Lasser, Year In Taxes 2009
·  
Fischer: Ten Road to Riches
·  
John Bogle: Enough
·  
Peter Schiff: Little Book of Bull Moves in Bear Markets
·  
Martin Weiss: Depression Survival Guide
·  
Addison Wiggin: I.O.U.S.A.: One Nation. Under Stress. In Debt
Psychology:
·  
Lenore Skenazy: Free Range Kids: Giving Our Children the Freedom We had without Going Nuts with Worry
·  
Michael Gurian: The Purpose of Boys: Helping Our Sons Find Meaning, Significance and Direction in Their Lives
·  
Gary Groth-Marnat: Handbook of Psychological Assessment, Fifth Edition
·  
Richard Lerner: Handbook of Adolescent Psychology, Third Edition
Consumer:
·  
Weight Watchers in 20 Minutes
·  
Mark Bittman: How to Cook Everything, Second Edition
·  
Bob Sehlinger: Unofficial Guide to Walt Disney World 2009
·  
GMAC: The Official Guide to the GMAT, Twelfth Edition
·  
Jack Cafferty: Now Or Never: Getting Down To Business of Saving Our American Dream
·  
Alan Rubin: Diabetes for Dummies
·  
Paul McFedries: iPhone 3G Portable Genius
Architecture:
·  
Edward Allen: Fundamentals of Building Construction, Fifth Edition
·  
Wiley CPE (Continuing Professional Education, a web-based online continuing education system).

Higher Education (HE):
   
     
 
% change
Dollars in thousands
2009
2008
% change
w/o FX
Revenue
$239,093
$240,651
(1%)
3%
Direct Contribution
$66,619
$74,387
(10%)
(5%)
Contribution Margin
27.9%
30.9%
   

Global HE revenue for fiscal year 2009 decreased 1% from the prior year period, but increased 3% excluding the unfavorable impact of foreign exchange. Excluding foreign exchange, revenue growth occurred in every region and in nearly every subject category.  Contributing to these results were a strong frontlist; approximately $6.6 million of revenue from recently acquired titles; solid growth from the Microsoft publishing agreement; and the continued success of WileyPLUS.

Direct contribution to profit decreased 10% to $66.6 million, or 5% excluding the unfavorable impact of foreign exchange. Direct contribution margin declined 300 basis points to 27.9%, or 240 basis points excluding the unfavorable impact of foreign exchange. The decline reflects prior year cost containment efforts which significantly curtailed expenditures in fiscal year 2008, higher accrued incentive compensation expense and increased marketing, advertising and content development costs to support the large frontlist.
 
 
34

 
 
WileyPLUS
·  
Now accounts for 9% of global HE revenue
·  
Global full year billings increased 38%
·  
Digital-only sales grew 70%
·  
Validation/usage rates increased
·  
WileyPLUS sales outside the US represent 15% of the total
 
Notable Alliances
·  
Microsoft Official Academic Course (MOAC) revenue was up 16% over prior year.
·  
Wiley is partnering with American Hospitality Training Institute, an online provider of hospitality training for students outside the US interested in working for US hotels and resorts. Twenty-one classes utilizing content from Barrows/Introduction to Management in the Hospitality Industry 9e will begin in June, 2009.
·  
Wiley and Learning House agreed to create highly integrative online courses based on Wiley textbooks.  The courses will be bundled with the book.  We received approval for a licensing agreement for two pilot courses in world regional geography and Spanish 1. Learning House is an online education solutions partner helping small colleges and universities offer and manage their online degree programs.
·  
Wiley expanded its alliance with Amazon to offer select Wiley textbooks for sale through the Kindle DX.   Books are set to go live on the Kindle Store in the summer of 2009.
 
Acquisitions
·  
In August 2008, Wiley acquired business and modern language textbooks from Cengage Learning and mathematics and statistics textbooks from Key College Publishing.
·  
These acquisitions contributed approximately $6.6 million of revenue in fiscal year 2009, exceeding expectations.
 
Custom Publishing
·  
Wiley Custom Select was successfully launched in the fourth quarter.  Wiley Custom Select is a custom textbook system that allows instructors to "build" customized higher education course materials that fit their pedagogical needs, enabling users to easily find the content, personalize the material and format, and submit the order.  In fiscal year 2009, custom sales increased approximately 25%.

Shared Service and Administrative Costs
 
Shared services and administrative costs for fiscal year 2009 decreased 7% to $337.0 million, or 2% excluding the favorable impact of foreign exchange. The improvement reflects lower accrued incentive compensation expense and lower integration costs, partially offset by planned salary merit increases, higher distribution costs due to increased journal shipping and handling and higher occupancy, facilities and depreciation costs related to business expansion.
 
Liquidity and Capital Resources
 
The Company’s cash and cash equivalents balance was $153.5 million at the end of fiscal year 2010, compared with $102.8 million a year earlier. Cash provided by operating activities in fiscal year 2010 increased $77.5 million to $418.8 million due primarily to higher earnings and non-cash charges and provisions, and lower working capital, partially offset by higher pension contributions.  Pension contributions in fiscal year 2010 were $48.1 million, of which $31.0 million were discretionary, compared to $21.0 million in the prior year.
 
 
35

 
 
The improvement in working capital was principally due to higher accrued incentive compensation, lower inventories due to improved sales and inventory management, and higher unearned deferred revenue, partially offset by higher accounts receivable due to increased book sales, and lower accounts payable due to timing of payments. The improvement in Deferred Revenue reflects journal subscription and WileyPLUS growth  and the timing of cash collections on journal subscriptions resulting from the resolution of prior year billing delays of approximately $37 million, which shifted cash collection from fiscal year 2009 to fiscal year 2010.
 
Cash used for investing activities for fiscal year 2010 was approximately $209.9 million compared to $201.6 million in fiscal year 2009. The Company invested $6.4 million in the acquisition of publishing businesses, assets and rights compared to $24.0 million in the prior year.  Cash used for property, equipment and technology and product development increased $25.8 million in fiscal year 2010 versus the prior year with product development spending increasing approximately $23.7 million primarily due to the timing of author advance payments.
 
Cash used in financing activities was $156.4 million in fiscal year 2010, as compared to $89.1 million in fiscal year 2009. In fiscal 2010, cash was used primarily to pay dividends to shareholders, and repay debt. The Company did not repurchase any shares in fiscal 2010 while during fiscal year 2009, the Company repurchased one million shares at an average price of $34.89. The Company increased its quarterly dividend to shareholders by 7.7% to $0.14 per share in fiscal year 2010 from $0.13 per share in the prior year. Proceeds from stock option exercises increased $21.0 million to $32.6 million in fiscal 2010.
 
The aggregate notional amount of interest rate swap agreements associated with the Term Loan and Revolving Credit Facility were $300 million as of April 30, 2010.  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.

The Company’s operating cash flow is affected by the seasonality and timing of receipts from its STMS journal subscriptions and its Higher Education business. Cash receipts for calendar year STMS subscription journals occur primarily from November through February.  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.

Global capital and credit markets have recently experienced increased volatility. As of April 30, 2010, we had approximately $649.0 million of debt outstanding and approximately $572.0 million of unused borrowing capacity under the Revolving Credit Facility which is described in Note 12. 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, 2010 was negative $188.7 million. Working capital is negative as a result of including, in current liabilities, unearned deferred revenue related to subscriptions for which cash has been collected in advance. This 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, 2010 include $275.7 million of such deferred subscription revenue for which cash was collected in advance.
 
 
36

 
 
Projected product development and property, equipment and technology capital spending for fiscal year 2011 is forecast to be approximately $145 million and $60 million, respectively, primarily to enhance system functionality and drive future business growth.

Contractual Obligations and Commercial Commitments
 
A summary of contractual obligations and commercial commitments, excluding interest charges on debt, and unrecognized tax benefits further described in Note 10, as of April 30, 2010 is as follows:

   
Payments Due by Period
 
   
Within
2-3
4-5
   After 5
 
Total
Year 1
Years
Years
Years
Total Debt
$649.0
$90.0
$559.0
$-
$-
           
Non-Cancelable Leases
238.6
34.0
59.1
54.8
90.7
           
Minimum Royalty Obligations
204.4
42.2
70.1
52.7
39.4
           
Other Commitments
6.8
4.6
2.1
0.1
-
           
Total
$1,098.8
$170.8
$690.3
$107.6
$130.1

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 $649.0 million of variable rate loans outstanding at April 30, 2010, which approximated fair value. On February 16, 2007, the Company entered into an interest rate swap agreement, designated as a cash flow hedge as defined under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging” (“ASC 815”).  The hedge locked-in a portion of the variable interest due on a portion of the Term Loan. Under the terms of the interest rate swap, the Company pays a fixed rate of 5.076% and receives a variable rate of interest based on three month LIBOR (as defined) from the counter party which is reset every three months for a four-year period ending February 8, 2011. The notional amount of the rate swap was initially $660 million which will decline through February 8, 2011, based on the expected amortization of the Term Loan.  As of April 30, 2010, the notional amount of the rate swap was $200.0 million.
 
On October 19, 2007, the Company entered into an additional interest rate swap agreement designed by the Company as a cash flow hedge that locked-in a portion of the variable interest due on the Revolving Credit Facility. Under the terms of this interest rate swap, the Company pays a fixed rate of 4.60% and receives a variable rate of interest based on three month LIBOR (as defined) from the counterparty which is reset every three months for a three-year period ending August 8, 2010. The notional amount of the rate swap is $100.0 million.
 
 
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It is management’s intention that the notional amount of interest rate swaps be less than the Term Loan and the Revolving Credit Facility outstanding during the life of the derivatives. During fiscal year 2010, the Company recognized a loss on its hedge contracts of approximately $20.4 million which is reflected in interest expense.  At April 30, 2010, the aggregate fair value of the interest rate swaps was a net loss of $11.5 million which is included in Other Accrued Liabilities in the Consolidated Statements of Financial Position.  On an annual basis, a hypothetical one percent change in interest rates for the $349.0 million of unhedged variable rate debt as of April 30, 2010 would affect net income and cash flow by approximately $2.2 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 2010 revenue was recognized in the following currencies: approximately 55% U.S dollar; 28% British pound sterling; 8% Euro and 9% other currencies.

Adjustments resulting from translating assets and liabilities are reported as a separate component of Accumulated Other Comprehensive Income (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 2010, the Company recorded approximately $60.3 million of currency translation gains in other comprehensive income primarily as a result of the weakening of the U.S. dollar relative to the British pound sterling.  
 
Effective November 1, 2008, the Company changed its functional currency reporting basis for the non-Blackwell portion of the Company’s European STMS journal business from U.S. Dollar to local currency. As part of the integration of Blackwell and Wiley fulfillment systems and licensing practices, in the third quarter of fiscal year 2009 the Company began pricing journal revenue based on local currency in Europe.  Prior to the integration, journal revenue was principally priced and reported in U.S. Dollars. This change primarily impacted business denominated in Euros and Sterling.

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.

During fiscal year 2010, the Company entered into forward exchange contracts to manage the Company’s exposure on certain foreign currency denominated assets and liabilities.  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 Gains (Losses) on the Consolidated Statements of Income.  The Company did not designate these 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.  Therefore, the forward exchange contracts are marked to market through Foreign Exchange Gains (Losses) on the Consolidated Statements of Income, and carried at their fair value on the Consolidated Statements of Financial Position.  Accordingly, fair value changes in the forward exchange contracts substantially mitigated the changes in the value of the remeasured foreign currency denominated assets and liabilities attributable to changes in foreign currency exchange rates. The fair value of open forward exchange contracts were measured on a recurring basis using Level 2 inputs.  In fiscal year 2010, the losses recognized on the forward contracts were $2.0 million, and were substantially offset by the foreign exchange gains recognized on the economically hedged foreign currency denominated assets and liabilities.  As of April 30, 2010, there were no open contracts outstanding. The Company did not enter into any forward exchange contracts during fiscal year 2009.
 
 
38

 
 
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 remitted to the journal publisher, including the Company, generally prior to the commencement of the subscriptions. 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 consolidated revenue and no one agent accounts for more than 10% of total 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 8% of total consolidated revenue, the top 10 book customers account for approximately 20% of total consolidated revenue and approximately 45% of accounts receivable at April 30, 2010.

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.
 
Financial Reporting Release No. 60, released by the Securities and Exchange Commission, requires all companies to discuss critical accounting policies or methods used in the preparation of financial statements.  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 principally 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.  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 using the relative fair value method based on the estimated selling prices of each deliverable within the arrangement. 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.  Revenue is reported net of any amounts billed to customers for taxes which are remitted to government authorities.
 
 
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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 $5.7 million as of April 30, 2010 and 2009, respectively.
 
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. Sales return reserves, net of estimated inventory and royalty costs, are reported as a reduction of accounts receivable in the Consolidated Statements of Financial Position and amounted to $55.3 million and $55.2 million as of April 30, 2010 and 2009, respectively.  A one percent change in the estimated sales return rate could affect net income by approximately $4.0 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 $39.7 million and $36.3 million as of April 30, 2010 and 2009, respectively.
 
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 estimates of the fair value of such items including goodwill and other intangible assets. 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. Other intangible assets principally consist of branded trademarks, acquired 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 circumstances indicate that the asset might be impaired. The fair values of the Company’s reporting units are substantially in excess of their carrying values. Other finite-lived intangible assets continue to be amortized over their useful lives. Acquired publication rights with definitive 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.
 
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 the current forecasts of 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 determined based upon actual results compared to 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.
 
 
40

 
 
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.
 
Recently Issued Accounting Standards: In September 2006, the Financial Accounting Standards Board (“FASB”) issued guidance which is included Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 provides a single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.  In February 2008, the FASB agreed to a one-year delay of the fair value measurement requirement for certain nonfinancial assets and liabilities. The Company adopted ASC 820 as of May 1, 2008 for assets and liabilities not subject to the deferral and as of May 1, 2009 for those nonfinancial assets and liabilities subject to the deferral.  The adoption did not have a significant impact on the Company’s consolidated financial statements or disclosures.
 
In December 2007, the FASB issued guidance which is included in ASC 805 “Business Combinations” (“ASC 805”) and is effective for acquisitions made on or after May 1, 2009.  ASC 805 expands the scope of acquisition accounting to all transactions under which control of a business is obtained.  Principally, ASC 805 requires that contingent consideration be recorded at fair value on the acquisition date and that certain transaction and restructuring costs be expensed. The Company adopted ASC 805 as of May 1, 2009 and is now accounting for all acquisitions made after the effective date under the standard.
 
In April 2008, the FASB issued guidance which is included in ASC 350 “Intangibles – Goodwill and Other” (“ASC 350”). The guidance in ASC 350 amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under ASC 350. The guidance requires an entity to consider its own experience with the renewal or extension of the terms of a contractual arrangement, consistent with its expected use of the asset.  The guidance also requires several incremental disclosures for renewable intangible assets.  Application of this standard will not significantly impact the process previously used by the Company to determine the useful life of intangible assets.  The Company adopted the guidance as of May 1, 2009 and is applying the guidance to intangible assets acquired after the effective date.
 
 
41

 
 
In August 2009, the FASB issued Accounting Standards Update (“ASU”) ASU 2009-05, “Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value ("ASU 2009-05").  ASU 2009-05 provides clarification to entities that measure liabilities at fair value under circumstances where a quoted price in an active market is not available.  The Company adopted ASU 2009-05 as of November 1, 2009.  The adoption did not have a significant impact on the Company’s consolidated financial statements.
 
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 will also be required.  The new guidance is effective for revenue arrangements entered into or materially modified on and after May 1, 2011.  The Company does not expect the application of this new standard to have a significant impact on its consolidated financial statements.
 
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.

“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.

 
 
42

 
 
Results By Quarter (Unaudited)

Dollars in millions, except per share data
 
   
2010
     
2009
   
                 
Revenue
               
First Quarter
$
388.4
   
$
401.7
   
Second Quarter
 
448.0
     
431.9
   
Third Quarter
 
427.1
     
374.4
   
Fourth Quarter
 
435.6
     
403.4
   
Fiscal Year
$
1,699.1
   
$
1,611.4
   
                 
Operating Income
               
First Quarter
$
 55.7
   
$
 44.3
   
Second Quarter (a)
 
75.3
     
 70.2
   
Third Quarter (a)
 
68.3
     
 63.3
   
Fourth Quarter (b)
 
43.3
     
 40.7
   
Fiscal Year
$
242.6
   
$
     218.5
   
                 
Net Income
               
First Quarter
$
  26.9
   
$
  30.2
   
Second Quarter (a)
 
46.3
     
  40.1
   
Third Quarter (a)
 
42.4
     
  33.4
   
Fourth Quarter (b)
 
27.9
     
  24.6
   
Fiscal Year
$
143.5
   
$
128.3
   
                 
   
2010
 
2009
Income Per Share
 
Diluted
 
Basic
 
Diluted
 
Basic
First Quarter
$
0.45
$
0.46
$
    0.50
$
    0.52
Second Quarter (a)
 
    0.78
 
0.79
 
    0.67
 
    0.68
Third Quarter (a)
 
0.71
 
    0.72
 
    0.57
 
    0.58
Fourth Quarter (b)
 
    0.46
 
0.47
 
    0.42
 
    0.42
Fiscal Year
$
   2.41
$
2.45
$
    2.15
$
    2.20


(a)  
In the second and third quarters of 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 second quarter charge was $11.5 million ($8.2 million after taxes) or $0.14 per diluted share. The third quarter charge was $2.8 million ($2.0 million after taxes) or $0.03 per diluted share.

(b)  
In the fourth quarter of fiscal year 2010, the Company recognized restructuring charges principally related to offshoring and outsourcing certain marketing and content management activities to Singapore. The fourth quarter charge was $0.8 million ($0.5 million after taxes) or $0.01 per diluted share.

 
 
43

 
 
Quarterly Share Prices, Dividends, and Related Stockholder Matters and Issuer Purchases of Equity Securities
 
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 by fiscal quarter for the past two fiscal years were as follows:
 
 
Class A Common Stock
Class B Common Stock
   
Market Price
 
Market Price
 
Dividends
High
Low
Dividends
High
Low
2010
           
First Quarter
 $0.14
$35.04
$30.84
$0.14
$35.00
$31.00
Second Quarter
0.14
35.90
29.77
0.14
35.76
29.50
Third Quarter
  0.14
43.17
35.35
0.14
43.30
35.17
Fourth Quarter
0.14
43.95
39.73
0.14
43.74
39.97
2009
           
First Quarter
 $0.13
$49.76
$43.39
$0.13
$49.52
$43.53
Second Quarter
  0.13
48.88
  27.75
    0.13
49.11
28.02
Third Quarter
  0.13
37.60
26.21
    0.13
37.58
26.05
Fourth Quarter
  0.13
36.72
27.55
    0.13
36.63
27.50
 
As of April 30, 2010, the approximate number of holders of the Company’s Class A and Class B Common Stock were 1,181 and 102 respectively, based on the holders of record.
 
The Company did not repurchase any common stock during the fourth quarter of fiscal year 2010.
 
The Company’s credit agreement contains certain restrictive covenants related to the payment of dividends and share repurchases. Under the most restrictive covenant, approximately $106.0 million was available for such restricted payments as of April 30, 2010.  Subject to the foregoing, 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.

 
 
44

 

 
Selected Financial Data

 
For the Years Ended April 30,
Dollars in millions (except per share data)
       2010
2009
2008
2007
2006
Revenue
$1,699.1
$1,611.4
$1,673.7
$1,234.6
$1,043.9
Operating Income (a)
242.6
218.5
225.2
161.5
152.9
Net Income (a,b,c)
143.5
128.3
147.5
99.6
110.3
Working Capital (d)
(188.7)
(157.4)
(243.6)
(199.7)
(35.8)
Total Assets
2,316.2
2,223.7
2,576.2
2,553.1
1,026.0
Long-Term Debt
559.0
754.9
797.3
977.7
160.5
Shareholders’ Equity
722.4
513.5
689.1
529.5
401.8
Per Share Data
         
Income Per Share (a,b,c)
         
Diluted
        $2.41
        $2.15
        $2.49
$1.71
      $1.85
Basic
        $2.45
        $2.20
        $2.55
       $1.75
      $1.90
Cash Dividends
         
Class A Common
        $0.56
        $0.52
        $0.44
       $0.40
      $0.36
Class B Common
        $0.56
        $0.52
        $0.44
       $0.40
     $0.36

 
NOTE:    The Company acquired Blackwell Publishing (Holdings) Ltd.  (“Blackwell”) on February 2, 2007.

(a)  
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.

(b)  
Tax benefits included in fiscal year results are as follows:

·  
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.  The benefits recognized by the Company reflect the adjustments required to record all U.K. and Germany-related deferred tax balances at the new corporate income tax rates.

·  
Fiscal year 2007 includes a $5.5 million tax benefit, or $0.09 per diluted share. This benefit coincides with the resolution and settlements of certain tax matters with authorities in the U.S. and abroad.

·  
Fiscal year 2006 includes a tax benefit of $6.8 million, or $0.11 per diluted share, related to the favorable resolution of certain matters with tax authorities.

·  
In the fourth quarter of fiscal year 2005, the Company elected to repatriate approximately $94 million of dividends from its European subsidiaries under the American Jobs Creation Act of 2004. The law provided for a favorable one-time tax rate on dividends from foreign subsidiaries. The tax accrued on the dividend in the fourth quarter of fiscal year 2005 was approximately $7.5 million, or $0.12 per diluted share.  Pursuant to guidance issued by the Internal Revenue Service in May 2005, the Company recorded a tax benefit in the first quarter of fiscal year 2006 reversing the accrued tax recorded in the previous year.  Neither the first quarter fiscal year 2006 tax benefit nor the corresponding fourth quarter fiscal year 2005 tax accrual had a cash impact on the Company.
 
         (c)
Effective May 1, 2006, the Company adopted the guidance included in ASC 718, “Compensation – Stock Compensation (“ASC 718”) which required that companies recognize share-based compensation to employees in the Statement of Income based on the fair value of the share-based awards.  The adoption of ASC 718 resulted in the recognition of an incremental share-based compensation expense of $11.3 million ($7.0 million after taxes) or $0.12 per diluted share for the full year ended April 30, 2007.

         (d)
Working capital is reduced or negative as a result of including in current liabilities the deferred revenue related to prepaid journal subscriptions for which the cash has been received.  The deferred revenue will be recognized into income as the journals are shipped or made available online to the customers over the term of the subscription.

 
 
45

 

Financial Statements and Supplementary Data

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, 2010.
 
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 2010.
 
The effectiveness of our internal control over financial reporting as of April 30, 2010 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/ William J. Pesce   
William J. Pesce
 
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 23, 2010
 
 
 
 
46

 

 
 Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
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, 2010 and 2009, 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, 2010. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule (as listed in the index to Item 8).  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, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2010, 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, 2010, 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 23, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 

 
(signed) KPMG LLP
 
New York, New York
 
June 23, 2010
 

 
 
47

 

 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
John Wiley & Sons, Inc.:
 
We have audited John Wiley & Sons, Inc.’s internal control over financial reporting as of April 30, 2010, 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, 2010, 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, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended April 30, 2010, and our report dated June 23, 2010 expressed an unqualified opinion on those consolidated financial statements.
 
(signed) KPMG LLP
 
New York, New York
 
June 23, 2010
 
 
48

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
John Wiley & Sons, Inc., and Subsidiaries
 
April 30
 
Dollars in thousands
 
         2010
   
         2009
 
Assets:
           
Current Assets
           
Cash and cash equivalents
  $ 153,513     $ 102,828  
Accounts receivable
    186,535       178,550  
Inventories
    97,857       111,267  
Prepaid and other
    47,809       46,924  
Total Current Assets
    485,714       439,569  
                 
Product Development Assets
    107,755       89,662  
Property, Equipment and Technology
    152,684       141,196  
Intangible Assets
    911,550       919,375  
Goodwill
    615,479       589,993  
Deferred Income Tax Benefits
    6,736       14,065  
Other Assets
    36,284       29,848  
Total Assets
  $ 2,316,202     $ 2,223,708  
                 
Liabilities and Shareholders’ Equity:
               
Current Liabilities
               
Accounts and royalties payable
  $ 158,870     $ 160,275  
Deferred revenue
    275,653       246,584  
Accrued employment compensation and benefits
    81,507       56,976  
Accrued income taxes
    2,516       4,281  
Accrued pension liability
    2,245       2,483  
Other accrued liabilities
    63,581       58,868  
Current portion of long-term debt
    90,000       67,500  
Total Current Liabilities
    674,372       596,967  
                 
Long-Term Debt
    559,000       754,900  
Accrued Pension Liability
    119,280       90,621  
Other Long-Term Liabilities
    73,445       91,292  
Deferred Income Tax Liabilities
    167,669       176,412  
Shareholders’ Equity
               
Preferred Stock, $1 par value: Authorized - 2 million, Issued - zero
    -       -  
Class A Common Stock, $1 par value: Authorized - 180 million,
               
Issued – 69,705,591 and 69,643,571
    69,706       69,644  
Class B Common Stock, $1 par value:  Authorized - 72 million,
               
Issued – 13,484,671 and 13,546,691
    13,485       13,547  
Additional paid-in capital
    210,848       164,592  
Retained earnings
    1,003,099       892,542  
Accumulated other comprehensive income (loss):
               
Foreign currency translation adjustment
    (142,731 )     (203,023 )
Unamortized pension and retiree medical
    (80,953 )     (41,978 )
Unrealized gain (loss) on interest rate swap
    (3,962 )     (13,397 )
      1,069,492       881,927  
Less Treasury Shares At Cost (Class A – 19,270,308 and 20,907,317;
               
Class B – 3,902,576 and 3,902,576)
    (347,056 )     (368,411 )
Total Shareholders’ Equity
    722,436       513,516  
Total Liabilities and Shareholders’ Equity
  $ 2,316,202     $ 2,223,708  
   
The accompanying notes are an integral part of the consolidated financial statements.
 

 
 
49

 


CONSOLIDATED STATEMENTS OF INCOME
 
                   
John Wiley & Sons, Inc., and Subsidiaries
 
For the years ended April 30
 
Dollars in thousands, except per share data
 
           2010
   
     2009
   
 2008
 
                   
Revenue
  $ 1,699,062     $ 1,611,390     $ 1,673,734  
                         
Costs and Expenses
                       
Cost of sales
    534,001       516,420       532,908  
Operating and administrative expenses
    872,193       839,648       876,635  
Impairment and restructuring charges
    15,118       -       -  
Amortization of intangibles
    35,158       36,844       38,980  
Total Costs and Expenses
    1,456,470       1,392,912       1,448,523  
                         
Operating Income
    242,592       218,478       225,211  
                         
Interest expense
    (32,334 )     (48,424 )     (66,738 )
Foreign exchange losses
    (10,883 )     (11,759 )     (2,863 )
Interest income and other, net
    834       6,180       5,918  
                         
Income Before Taxes
    200,209       164,475       161,528  
Provision for Income Taxes
    56,666       36,217       13,992  
                         
Net Income
  $ 143,543     $ 128,258     $ 147,536  
                         
Income Per Share
                       
Diluted
  $ 2.41     $ 2.15     $ 2.49  
Basic
    2.45       2.20       2.55  
                         
Cash Dividends Per Share
                       
Class A Common
  $ 0.56     $ 0.52     $ 0.44  
Class B Common
    0.56       0.52       0.44  
                         
Average Shares
                       
Diluted
    59,679       59,610       59,323  
Basic
    58,498       58,419       57,921  
   
The accompanying notes are an integral part of the consolidated financial statements.
 


 
 
50

 


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
John Wiley & Sons, Inc., and Subsidiaries
 
For the years ended April 30
 
Dollars in thousands
 
            2010
   
           2009
   
              2008
 
                   
Operating Activities
                 
Net Income
  $ 143,543     $ 128,258     $ 147,536  
Noncash Items
                       
Amortization of intangibles
    35,158       36,844       38,980  
Amortization of composition costs
    47,440       43,767       43,613  
Depreciation of property, equipment and technology
    40,281       35,134       33,330  
Impairment and restructuring charges (net of tax)
    10,631       -       -  
Stock-based compensation
    24,842       17,042       28,041  
Excess tax benefits from stock-based compensation
    (7,636 )     (5,350 )     (11,223 )
Non-cash tax benefits
    -       -       (18,663 )
Reserves for returns, doubtful accounts, and obsolescence
    18,916       13,355       6,419  
Deferred income taxes
    9,481       17,141       10,784  
Foreign exchange transaction losses
    10,883       11,759       2,863  
Pension expense
    20,319       18,324       22,894  
Earned royalty advances and other
    81,828       76,175       58,100  
Changes in Operating Assets and Liabilities
                       
Source/(Use), excluding acquisitions
                       
Accounts receivable
    (9,004 )     17,625       (20,007 )
Inventories
    13,960       (6,696 )     (10,038 )
Accounts and royalties payable
    (15,585 )     8,070       4,421  
Deferred revenue
    21,626       (41,132 )     10,277  
Net taxes payable/receivable
    10,887       4,994       9,745  
Other accrued liabilities
    15,908       (14,416 )     (13,701 )
Pension contributions
    (48,124 )     (21,020 )     (59,360 )
Other
    (6,565 )     1,381       (3,876 )
Cash Provided by Operating Activities
    418,789       341,255       280,135  
Investing Activities
                       
Additions to product development assets
    (155,367 )     (131,666 )     (113,069 )
Additions to property, equipment and technology
    (48,110 )     (46,009 )     (50,315 )
Acquisition of other publishing businesses, assets and rights
    (6,430 )     (23,960 )     (6,802 )
Cash Used for Investing Activities
    (209,907 )     (201,635 )     (170,186 )
Financing Activities
                       
Repayment of long-term debt
    (951,010 )     (618,512 )     (1,049,360 )
Borrowings of long-term debt
    777,610       598,594       891,476  
Purchase of treasury stock
    -       (35,110 )     (3,679 )
Change in book overdrafts
    9,707       (20,522 )     36,253  
Cash dividends
    (32,986 )     (30,478 )     (25,613 )
Excess tax benefits from stock-based compensation
    7,636       5,350       11,223  
Proceeds from exercise of stock options and other
    32,625       11,623       15,190  
Cash Used for Financing Activities
    (156,418 )     (89,055 )     (124,510 )
Effects of Exchange Rate Changes on Cash
    (1,779 )     (7,048 )     2,379  
Cash and Cash Equivalents
                       
Increase/(Decrease) for year
    50,685       43,517       (12,182 )
Balance at beginning of year
    102,828       59,311       71,493  
Balance at end of year
  $ 153,513     $ 102,828     $ 59,311  
Cash Paid During the Year for
                       
Interest
  $ 33,186     $ 50,108     $ 69,071  
Income taxes, net
  $ 33,358     $ 15,942     $ 24,679  
 The accompanying notes are an integral part of the consolidated financial statements.                        

 
51

 

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, 2007
$69,388
$13,803
$100,013
$673,254
$(351,907)
$24,957
$529,508
               
Shares Issued Under Employee Benefit Plans
   
(2,665)
 
3,590
 
925
Purchase of Treasury Shares
       
(3,679)
 
(3,679)
Exercise of Stock Options, including taxes
   
15,334
 
9,790
 
25,124
Stock-based compensation expense
   
28,041
     
28,041
Class A Common Stock Dividends
     
(21,263)
   
(21,263)
Class B Common Stock Dividends
     
(4,350)
   
(4,350)
Other
254
(254)
         
Adoption of accounting standards for uncertain tax positions
     
(415)
   
(415)
Comprehensive Income:
             
Net income
     
147,536
   
147,536
Foreign currency translation loss
         
(3,932)
(3,932)
Unamortized pension and retiree medical, net of a $1,848 tax provision
         
3,652
3,652
Change in unrecognized loss of interest rate swap, net of a $7,248 tax benefit
         
(12,029)
(12,029)
Total Comprehensive Income
           
135,227
               
Balance at April 30, 2008
$69,642
$13,549
$140,723
$794,762
$(342,206)
$12,648
$689,118
               
Shares Issued Under Employee Benefit Plans
   
(3,325)
 
3,209
 
(116)
Purchase of Treasury Shares
       
(35,110)
 
(35,110)
Exercise of Stock Options, including taxes
   
10,152
 
5,696
 
15,848
Stock-based compensation expense
   
17,042
     
17,042
Class A Common Stock Dividends
     
(25,463)
   
(25,463)
Class B Common Stock Dividends
     
(5,015)
   
(5,015)
Other
2
(2)
         
Comprehensive (Loss):
             
Net income
     
128,258
   
128,258
Foreign currency translation loss
         
(256,314)
(256,314)
Unamortized pension and retiree medical, net of a $5,553 tax benefit
         
(15,165)
(15,165)
Change in unrecognized loss of interest rate swap, net of a $261 tax provision
         
433
433
Total Comprehensive (Loss):
           
(142,788)
               
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 (Loss):
             
Net income
     
143,543
   
143,543
Foreign currency translation gain
         
60,292
60,292
Unamortized pension and retiree medical, net of a $18,657 tax benefit
         
(38,975)
(38,975)
Change in unrecognized loss of 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
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
 
52

 

Notes to Consolidated Financial Statements
 
Note 1 – Description of Business
 
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 is a global publisher of print and electronic products, providing content and digital solutions to customers worldwide. Core businesses include scientific, technical, medical and scholarly journals, encyclopedias, books, online products and services; professional and consumer books, subscription products, certification and training materials, online applications and websites; and educational materials in all media, including integrated online teaching and learning resources, for undergraduate, graduate and advanced placement 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 professionals, consumers, researchers, students, and educators. The use of technology enables the Company to make its content more accessible to its customers around the world. The Company maintains publishing,