Wiley had another solid year in fiscal year 2004, achieving record results. Earnings per diluted share and net income rose 12%, excluding certain tax benefits and relocation charges. Including the tax benefits and relocation charges, earnings per diluted share were $1.41 in fiscal year 2004 versus $1.38 in fiscal year 2003.
We increased our revenue by 8% over the prior year, or 5% excluding foreign currency effects. Cash flow after investing activities of $120 million increased significantly from the prior year, reflecting the combined effect of a 25% increase in cash provided by operating activities and a decrease, as expected, in capital expenditures.
We ended the year on a strong note as our momentum accelerated during the second half in the United States and abroad. Fourth quarter revenue advanced 14% over the prior year, including foreign currency effects, or 11% excluding those effects. Fourth quarter earnings per diluted share were $0.16, up 20% from the fourth quarter of fiscal year 2003.
The past year was challenging in the markets in which we compete, which makes our achievements especially gratifying. We anticipated these conditions, managed our expenses and investments carefully, and gained market share.
Our 2004 results sustain the Company's longer-term performance record, one of the best in the industry. During the past decade, we have increased our revenue at a compound annual rate of 12% and our earnings per diluted share at a compound annual rate of 22%, excluding unusual items. The Company's stock price has appreciated at a compound annual rate of 19% since 1994. In June 2004, we increased the dividend rate on both the Class A and Class B shares for the 11th consecutive year. The new quarterly rate is $.075 per Class A and Class B share, representing a 15% increase over the previous rate of $.065 per share.
This decade-long record of success reflects the resiliency of our business, the strength of our highly regarded global brands, and the professionalism and commitment of our colleagues.
THREE CORE BUSINESSES
Wiley is a leading global company competing in three attractive businesses: Professional/Trade; Scientific, Technical, and Medical (STM); and Higher Education. Each of our businesses posted higher revenue and operating results in fiscal year 2004. We did well not only in North America, but also in Europe, Asia, Australia, and other global markets.
Approximately 39% of revenue was derived from non-U.S. markets. Our growth was especially strong in India and China, where we are increasing our market penetration. We are not only selling more products and services in China, but we are also receiving more manuscript submissions from Chinese scientists and academics as the globalization of science, education, and commerce continues.
OUR VISION OF WILEY AS A CUSTOMER-CENTRIC ORGANIZATION
All of us at Wiley are proud of our enduring commitment to customers. Understanding and meeting their needs has been central to the Company's success for nearly two centuries.
As we build on that commitment, we envision that Wiley will become even more customer-centric. The "Innovative Solutions" pages of this Annual Report feature specific examples of what customer-centric means to us. These examples — many of which involve the effective use of technology — demonstrate how we are listening more closely than ever to our customers; providing our content when, where, and in whatever media and formats they prefer; and increasingly offering solutions, not just content. We are enthusiastic about Wiley's future as we grow by serving our customers' requirements for authoritative, must-have content and services, provided in ways that make a difference in their professional and personal lives.
Professional/Trade Professional/Trade is Wiley's largest business. We possess an impressive collection of brands and franchises - including For Dummies, Frommer's, Betty Crocker, Pillsbury, CliffsNotes, JK Lasser, Jossey-Bass, Wrox, Webster's New World, and Architectural Graphic Standards - that position us competitively around the world.
Global Professional/Trade revenue increased 7% in fiscal year 2004, or 4% excluding the foreign currency gains. In the U.S., sales were flat to lower in the first half of the fiscal year, then rebounded strongly as our business, architecture, culinary, education, and consumer programs did well. In addition, Professional/Trade continued to benefit from the growing online sales of print product, which accounted for about 20% of its retail sales.
We introduced a number of important new products and brand extensions. CliffsNotes was extended to CliffsStudySolver guides, which contain problem-solving tools. The For Dummies brand was extended to For Dummies All-In-One titles, which combine existing, related For Dummies books. Interior Graphic Standards is the first brand extension of our bestselling Architectural Graphic Standards franchise.
As in our other segments, the Professional/Trade group continues to form co-branding alliances that contribute to its growth. Our Betty Crocker cookbooks, published in alliance with General Mills, Inc., had an outstanding year. Late in the fiscal year, we expanded our highly successful relationship with General Mills by signing an agreement to publish books under the Pillsbury brand name. We now have Professional/Trade alliances with more than 40 partners who bring content, brand recognition, and/or distribution capabilities to our joint publishing efforts.
Looking ahead, we intend to continue to grow our Professional/Trade business organically and through acquisitions, accelerating revenue and margin growth through global collaboration; custom publishing additional electronic products; leveraging our powerful brands; and continuing to focus on co-branding opportunities through alliances and franchises.
Scientific, Technical, and Medical (STM) Worldwide revenue of our STM business increased 10%, or 7% excluding foreign exchange gains, in fiscal year 2004. Our STM operation is primarily an online business through the Wiley InterScience service, which was launched in 1999 and is today a profitable, global enterprise. The great majority of our STM content — journals, reference works, protocols, and databases, as well as frontlist books — is now accessible both in print and online through Wiley InterScience.
The success of Wiley InterScience has been a catalyst for the growth of our society journal-publishing program. More societies are choosing Wiley as their publishing partner because of our proven ability to meet their needs and our leadership in publishing journals on the Web. Some of the society journals that we added this year to our portfolio included Polymer Engineering & Science; Polymer Composites; Journal of Vinyl & Additive Technology; AIChE Journal; Environmental Progress; and Process Safety Progress.
In recent years, the rapid migration to online delivery has transformed the journal industry. We continue to make the necessary investments to ensure that our journals serve the needs of the scientific community for the rapid dissemination of peer-reviewed research. We have consistently added content and functionality to Wiley InterScience to make the service even more valuable. In addition, we are exploring some new pricing models that would provide libraries with greater control over their journal costs while permitting librarians to continue to select the content they need.
Looking ahead, our goal is to continue to increase the worldwide market penetration of Wiley InterScience through additional content, features, and licenses. We are also intent on adding more society-owned journals to our publishing portfolio; revitalizing our global STM book business; and exploring and, if appropriate, expanding into adjacent businesses that leverage our core competencies.
Higher Education Our Higher Education business is a leader in courses in the sciences, engineering, computer science, mathematics and statistics, and business and accounting, with a growing presence in modern languages and the social and behavioral sciences. Global revenue increased 8% in fiscal year 2004, or 4% excluding foreign exchange gains. Our programs in the sciences and the social sciences did especially well. Sales of engineering and computer science titles continued to reflect sluggish market conditions in the U.S.
We believe that higher education publishing will become predominantly an online business over time, as instructors and students make greater use of the Web. We are investing significantly in technology to meet our customers' needs and continue to strengthen our market position.
Technology is enabling us to offer new product models that address students' concerns about price and value, including eGrade Plus, which provides content in an integrated online format organized around the teaching and learning. Market response has been positive.
Going forward, we will seek to maintain a balanced Higher Education portfolio by strengthening our leadership positions in key subject areas and expanding selectively into other courses with growth potential. In addition, we intend to continue to increase our use of the Web to meet instructor and student needs; introduce new products, services, and business models that address price/value concerns; further expand our custom publishing operation; and increase sales of our products into non-traditional college channels, including professional and trade schools, career colleges, and continuing education.
A CULTURE THAT REINFORCES ETHICAL BEHAVIOR
Wiley is known for our performance-driven culture and unwavering commitment to the highest standard of ethical behavior and integrity. Fundamental to our values is a belief in collaborative relationships and treating people with respect.
Our emphasis on people is reflected in our strong customer focus. By providing meaningful value to our customers in a fair and ethical manner, we are able to generate attractive intellectual and financial rewards for all our stakeholders — authors, colleagues, partners, and stockholders.
BOARD OF DIRECTORS
H. Allen Fernald, President and Chief Executive Officer of Down East Enterprises, Inc., retired from the Board of Directors in accordance with the Company's By-Laws, which provide for mandatory retirement at age 70, except in special circumstances. Allen had served on our Board since 1979. We thank him for his wise counsel and significant contributions.
In September 2003, we welcomed two new directors - Matthew S. Kissner, Executive Vice President and Group President, Global Enterprise Solutions, Pitney Bowes Inc., and William B. Plummer, Vice President and Treasurer, Alcoa, Inc.
Wiley is positioned for another year of solid growth in fiscal year 2005. We believe we have the people, the products, and the financial resources to continue to grow and prosper in fiscal year 2005 and beyond.
During the next year, we will continue to focus on three strategic goals: building long-term customer relationships; increasing profitability, cash flow, and return on investment; and enhancing Wiley's position as the place to be for our authors, colleagues, partners, and stockholders.
We thank all of Wiley's stakeholders for their support. As much as any other field of endeavor, publishing is a business of people. The talent, enthusiasm, and expertise of our colleagues, collaborating across organizational and geographic boundaries, will continue to drive Wiley's remarkable success.
WILLIAM J. PESCE
President and Chief Executive Officer
PETER BOOTH WILEY
Chairman of the Board
June 17, 2004
DAVID ALLIS RECEIVES WILEY PRIZE
The third annual Wiley Prize in the Biomedical Sciences was awarded to C. David Allis, Ph.D., the Joy and Jack Fishman Professor, Laboratory of Chromatin Biology and Epigenetics at the Rockefeller University in New York. Dr. Allis was honored for his studies of the chemical modifications that control chromatin structure and function. His work has led to breakthroughs in the treatment of certain leukemias and holds promise for many other forms of cancer. The Wiley Prize is bestowed by the Wiley Foundation to recognize contributions that have opened new fields of research or have advanced novel concepts or their applications in a particular biomedical discipline.