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To Our Shareholders
Envisioning Our Future
Core Business:
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Scientific, Medical and Technical
Higher Education
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CORE BUSINESS HIGHLIGHTS
VISION, STRATEGY, AND EXECUTION
LOOKING AHEAD

ONCE AGAIN, WILEY HAS DELIVERED RECORD FINANCIAL RESULTS despite challenging market conditions. We increased revenue for the year by 6% over the prior year to $974 million, or 4% excluding foreign currency effects. Earnings per diluted share rose 8% to $1.47 and net income increased 6% to $91.3 million, excluding a tax adjustment related to the repatriation of foreign dividends.

Free cash flow of $152 million increased 23% over last year’s record excluding acquisitions. Our consistently strong cash position has allowed us to supplement organic growth with strategic acquisitions, steadily increase dividends, and engage in an active stock share repurchase program. During fiscal year 2005, the Company acquired publishing assets in several transactions aggregating to $23 million; raised our dividend by 15% and paid $18 million in cash dividends to shareholders; and purchased 2.9 million shares of Class A common stock at an average price of $32.94 per share.

Operating income of $141.4 million increased 9% over prior year, reflecting improved inventory management and product mix. Operating and administrative expenses for the year increased only 5%, or 3% excluding foreign exchange effects. Auditing and compliance costs associated with Sarbanes-Oxley added approximately 1% to the year-on-year increase in expenses.

The Company elected to repatriate approximately $94 million of foreign dividends during the fourth quarter under the American Jobs Creation Act of 2004, which provides for a favorable one-time tax rate on dividends from foreign subsidiaries. The tax on the dividend was approximately $7.5 million or $0.12 per diluted share and will have no cash impact due to an offsetting tax credit that will be recognized in the first quarter of fiscal year 2006. In the third quarter of fiscal year 2004 the Company reported a net tax benefit of $3 million, or $0.05 per diluted share.

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CORE BUSINESS HIGHLIGHTS

The strong performance of Wiley's global Scientific, Technical, and Medical business (STM) as well as improved Professional/Trade results, particularly in Europe and Asia, combined with careful management of expenses and investments, fueled growth in fiscal year 2005. The Company's record results were achieved despite a 1% decrease in revenue from prior year by our Higher Education business, reflecting industry-wide conditions.

Professional/Trade possesses an impressive collection of brands and franchises — including For Dummies®, Frommer's, Betty Crocker, Pillsbury, CliffsNotes, J.K. Lasser, Jossey-Bass, Wrox, Webster's New World, and Architectural Graphic Standards — that position us competitively around the world. Our focus on publishing in select professional and consumer categories strengthens our competitive advantage.

Revenue of Wiley's U.S. P/T business increased 3% to $350.3 million in fiscal year 2005 as a result of organic growth in key publishing categories, particularly For Dummies books, the professional culinary program, and Webster's New World Dictionary. High-end technology titles showed improvement for the year while consumer technology publishing remained sluggish. Revenue generated through brand licensing, the sale of rights, and online advertising was up 22% for the year. Improved sales returns contributed to the favorable results. P/T's direct contribution to profit was up 9% for the year, compared to fiscal year 2004, reflecting gross margin improvement, lower inventory and advance provisions, and prudent expense management.

Young and Simon/iCon: Steve Jobs, The Greatest Second Act in the History of Business received extensive coverage around the world, generating strong sales interest. Two titles were published with television series tie-ins: Bittman/How to Cook Everything and Ramsay/In the Heat of the Kitchen. Rivoli/Travels of a T-Shirt was the subject of a three-part series on National Public Radio, which drew positive coverage in The Wall Street Journal, Time Magazine, and the San Francisco Chronicle.

Eleven Wiley titles were included on bestseller lists in major publications this year, including the market-leading J.K. Lasser's Your Income Tax; Lencioni/Five Dysfunctions of a Team; and Tyson/Investing For Dummies.

P/T took advantage of the considerable potential of our industry-leading brands throughout the year. As a result, Frommers.com, Dummies.com, and CliffsNotes.com all experienced growth in site traffic, subscriber counts, and sales. P/T's customization business expanded rapidly. Of special note are customized For Dummies publications, which are in great demand by corporations and organizations around the world that want to leverage the power of this well-known brand.

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Wiley forms co-branding alliances with companies and organizations with complementary competencies and/or new author or customer relationships. A few examples include agreements with TTE Corporation, the manufacturer of RCA digital television products, to publish HDTV For Dummies, launch a “Digital TV Center” Web site featuring technical articles and related information, and create a customized reference and setup guide that will be packaged with selected RCA products; with MTV to publish a MTV-Frommer's cobranded series of travel guides for students; with the Securities Institute in the U.K. to publish a series of introductory finance books; and with Axia College, a University of Phoenix affiliate, to provide online course plans, curricula, and learning materials in hospitality management.

During the fourth quarter,Wiley completed the acquisition of Whurr Publishers Limited, a London-based publisher of books and journals for the nursing, speech and language therapy and audiology, psychology, and special education markets. Soon after the end of the fiscal year, the Company acquired California-based Sybex, Inc., a global publisher of computer books and software for the information technology professional.

Scientific, Technical, and Medical is primarily an online business through Wiley InterScience, a profitable global enterprise through which customers access the great majority of our STM content. Our journals, major reference works, Current Protocols, books, and databases are also available in print.

Wiley's U.S. STM revenue increased 7% to $190.5 million in fiscal year 2005 over the previous year. The STM results reflect an outstanding finish to an excellent year. Electronic journals, especially new society publications, and revenue from non-subscription sources, such as STM reference books, journal backfiles, and advertising sales, all contributed to year-on-year growth. STM's direct contribution to profit was up 3% over the prior fiscal year, reflecting the combined effects of increased revenue and favorable product mix, partially offset by costs associated with new society journals. Globally, the STM business recorded strong growth, up approximately 9% over fiscal year 2004.

STM enjoyed healthy renewals of Enhanced Access Licenses for Wiley InterScience. Sales of the Cochrane Collection were very strong throughout the year, exceeding expectations. The global STM book program recorded its sixth straight quarter of robust growth, especially in Europe and Asia, resulting in a gain of nearly 12% in fiscal year 2005 over the previous year. It was also a strong year for the electronic major reference work program.

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During fiscal year 2005, the Company's STM business continued its transformation to digital access through Wiley InterScience. Wiley believes that the research community and society at large are best served by the widest possible dissemination of scientific, technical, and medical information and continues to make significant investments in Wiley InterScience to add content and functionality and facilitate greater accessibility and discoverability.

Wiley continued to develop its journal and book programs by adding more content to Wiley InterScience to meet customers' information needs. Three newly digitized journal backfile collections were added to the service, and an ambitious program was announced to digitize back issues of all journal holdings.

More and more customers found their way to Wiley InterScience through Google™ and by taking advantage of alternative pricing programs such as Pay-Per-View and the new, customer-driven pricing model for Wiley InterScience Online Books™. Reference linking improvements, new marketing initiatives like Google Adwords, ISI® alerts, and Wiley InterScience feature boxes, and the addition of content including new society journals and backfile collections also drove traffic. As a result, usage during the fourth quarter increased 23% over the third quarter and 56% over the previous year's fourth quarter.

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The high quality of Wiley's content continued to be a strong draw to Wiley InterScience. An article from Wiley's journal Chirality was cited by the Chemical Abstracts Service® as the most requested article in 2004 from all of their products and services, which include SciFinder and SciFinder Scholar. Additionally, the January/February 2005 issue of ISI Science Watch®, a subscription newsletter that uses ISI's citation data to provide rankings, listed five Wiley journals among the “Hottest Journals of the Millenium So Far.”

Wiley signed an agreement during the fourth quarter with the British Library for delivery of Wiley content through their document delivery service. Earlier in the year, the Company extended its publishing partnerships with the Society of Chemical Industry and the Cochrane Collaboration. Closer collaboration with the American Health Care Journalists Society and the Centre for the Advancement of Health has generated media exposure for the Cochrane databases. Cooperative marketing initiatives with a number of scholarly societies have been also been formed to promote other Wiley publications.

The Company formed publishing partnerships with prominent national, regional, and international societies, such as the American Institute of Chemical Engineers, the Shanghai Institute of Organic Chemistry (a part of the Chinese Academy of Sciences), the Orthopaedic Research Society, the American Society of Cytopathology, and the Society of Hospital Medicine.

Acquisitions completed during the year include the reference portfolio of the Nature Publishing Group; the book list of Professional Engineering Publishing; and the publishing arm of the Institute of Mechanical Engineers.

Higher Education is a leader in courses in the sciences, engineering, computer science, mathematics and statistics, business and accounting, geography, hospitality, and the culinary arts, with a growing presence in modern languages, psychology, and education. Publishing for the Higher Education market is becoming an increasingly online business as instructors and students are making greater use of the Web to teach and to learn.

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In a recent article in Barron's magazine. An investor described Wiley as “…a stock for all season's, a Company that delivers whether the economy is headed up or down.”

Wiley's U.S. Higher Education business closed out a challenging fiscal year 2005 with revenue of $150.9 million, down 1% from the previous year. Higher Education's direct contribution to profit for the year was down 8% from the previous year, reflecting the top-line results, investments in new products, services, and business models and inventory write-offs.

Wiley Higher Education is committed to delivering highquality learning materials and services, while addressing concerns among students about price and value. The prime example is eGrade Plus, which has been well received in the United States and abroad. More and more students and professors are using its customizable multiformat content that is organized around teaching and learning activities such as studying, self-testing, assessment, and course management. A new version of eGrade Plus, with increased functionality and enhanced branding, is set to launch in time for the next academic year.

During the fourth quarter, Higher Education began to roll out a strong front list for the coming academic year, with a number of promising first editions as well as revisions of widely used titles. In addition, the number of low-cost textbooks being offered continued to increase. Outside the United States, more local adaptations of U.S. textbooks are being published, primarily for markets in Asia and the Middle East.

An important multi-year publishing agreement was signed with the National Geographic Society (NGS), one of the world's foremost research and educational societies. Wiley will create textbooks and digital learning tools that will incorporate maps, photographs, graphics, illustrations, and videos from the NGS's vast library. Earlier in the year,Wiley renewed and expanded its agreement with Rand McNally & Co. to be the exclusive distributor to the higher education community of their Goode's World Atlas. Other alliances were formed during the year with GlobalSpec, OuterNet Publishing, Tata, and Just Ask!.

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VISION, STRATEGY, AND EXECUTION

Wiley has been delivering solid results in both robust and slow-growth markets, year after year, for more than a decade. Wiley's revenue and earnings have increased over the past decade at compound annual growth rates of 11% and 18%, respectively. For the same period, Wiley's share price increased at a compound annual growth rate of nearly 19%, the best in the industry, as reported in The Wall Street Journal.

Wiley is highly regarded in the industry in the United States and abroad, well respected by authors, partners, intermediaries, customers, competitors, and colleagues. We were recognized by FORTUNE magazine this year as one of the best companies to work for — one of several such honors Wiley received this year. Wiley is succeeding because we have found an effective blend of vision, strategy, and execution. Our results reflect the combined effects of Wiley's unique mix of core businesses, the resiliency of our highly regarded brands and must-have content, the power of our performance-driven, collaborative culture, our long commitment to quality and fiscal responsibility, and our ability to adapt and change while executing our strategies to serve customers better.

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LOOKING AHEAD

As we continue to meet the needs of the global marketplace, our role as a content provider is evolving. Over the past five years, we have introduced more new business models than we had in the previous 193 years, in part because we are no longer limited by the physicality of a book or a journal. Our investments in technology are enabling us to make our must-have content available to our customers to use in their professional and personal lives with greater immediacy, utility, and flexibility than ever before.

To continue our record of accomplishment, we are refining our strategies to adapt to the changing environment. Strategies are included in the “envisioning our future” and “core busineses” sections later in this Annual Report.

In 2007, Wiley will celebrate its 200th anniversary, an extraordinary achievement in and of itself. Our Company has not only endured, it has thrived. As we approach this remarkable milestone, we are finding ways to continue Wiley's successful journey.

We are building a future that is not bound by organizational and geographic boundaries or print on paper. We are in the process of providing even more access to more content by more people than ever before. Our vision for Wiley is enabled by technology and fueled by the commitment, creativity, and integrity of our colleagues.


William J. Pesce
President and Chief Executive Officer


Peter Booth Wiley
Chairman of the Board

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