Wiley finished an extraordinary year on a positive note. We launched the celebration of our bicentennial by making the largest acquisition, by far, in our history. Blackwell Publishing Ltd. was acquired on February 2, 2007, for £572 million.
While completing the acquisition and beginning the integration process, Wiley recorded record revenue for fiscal year 2007 of $1.2 billion, 18% above prior year, including revenue for one quarter from Blackwell. Excluding the acquisition, Wiley’s revenue grew 8% to $1.1 billion, also a record. Excluding foreign exchange, revenue increased 7%. On a U.S. GAAP basis, earnings per diluted share for fiscal year 2007 was $1.71 compared to $1.85 in fiscal year 2006. Fiscal year 2007 results include incremental stock option costs associated with the adoption of SFAS 123R of $11 million, or $0.12 per share, and a bad-debt provision related to the Advanced Marketing Services (AMS) bankruptcy of $4 million, or $0.05 per diluted share. On a comparable basis to last year (excluding SFAS 123R, various tax benefits, and the Blackwell acquisition), earnings per diluted share grew 9%.
In fiscal year 2007, the Company, excluding Blackwell, generated cash from operating activities of $240 million. During the year, we repurchased $7 million of Wiley shares; acquired publishing assets in several transactions, in addition to Blackwell, of $20 million; and paid $23 million in dividends to shareholders.
On April 30, the last day of the fiscal year, Wiley’s share price was $37.45, up slightly from last year. Soon afterward, our stock price reached a record high. Crain’s NY Business said of the upward trend, “Investors are clearly signaling faith that solid management can triumph even in the most bookish of industries.” The Toronto Globe & Mail commented, “…we know a winning stock when we see one.”
We began Wiley’s third century moving forward on a path of expansion, fueled by organic growth in our core businesses and the Blackwell acquisition. Wiley and Blackwell colleagues around the world are collaborating effectively to realize our aspirations for this acquisition. We have already validated many of the key assumptions that underlie our acquisition plan.
The merger of Wiley’s Scientific, Technical, and Medical (STM) business and Blackwell is accelerating the move toward global leadership and management that both companies have been pursuing over the past decade. During the fourth quarter of fiscal year 2007, we announced the global organization structure for the merged business, which includes Blackwell and Wiley colleagues on the leadership team. Plans have been approved to combine global sales, marketing, and content management, which will result in significant synergies. As planned, we are capitalizing on Blackwell’s successful off-shoring and outsourcing of various content-management, manufacturing, and shared support services.
Our current priorities are to finalize plans for the implementation of a single Web platform; complete the integration of technology resources; and transition to a common financial reporting, distribution, and customer service infrastructure. By the end of fiscal year 2008, we expect to have implemented the action plans and initiatives that will deliver the synergies that underpin our acquisition plan.
The record results for fiscal year 2007 were driven by the strong performances of all of our global businesses—Professional/Trade, STM, and Higher Education—all of which outpaced industry performance. Blackwell results exceeded our fourth quarter projections, and the integration with Wiley’s STM business is proceeding as planned. Although the merger of the two businesses is underway, for the purposes of financial reporting in fiscal years 2007 and 2008, Blackwell is being treated as a separate segment.
In addition, it should be noted that the Company finalized a review of certain product prices used to settle inter-segment sales during the first quarter of fiscal year 2007. While the modification has no effect on consolidated financial results, it does impact individual segment operating results. The impact of the change, where significant to segment results, is described below.
With leading positions in targeted consumer and professional categories, Wiley’s P/T business possesses a formidable portfolio of global brands that include For Dummies, Frommer’s, Betty Crocker, Pillsbury, CliffsNotes, Webster’s New World, J.K. Lasser, Jossey-Bass, Pfeiffer, and Sybex.
Products are developed in the United States, Canada, Europe, Asia, and Australia for worldwide distribution through multiple channels, including bookstores, online sales, and direct marketing.
U.S. P/T revenue for fiscal year 2007 advanced 5% to $399 million, or 7% adjusting for the effect of changes in inter-segment product prices. The results were driven by the cooking, travel, business, and technology programs. Strong global rights sales and advertising revenue also contributed to the results. Global P/T sales increased 9% over the prior year.
Two of P/T’s leading brands marked milestones of their own during Wiley’s bicentennial year—the 75th anniversary of Architectural Graphic Standards, published in partnership with the American Institute of Architects and now in its 11th edition, and the 50th anniversary of the market-leading Frommer’s travel-guide brand.
P/T extended its strength in travel with the launch of the MTV Travel Guide series, the indigenous U.K. Frommer’s series, and a new series by Pauline Frommer, daughter of founder Arthur Frommer. Wiley now offers companies in the travel industry Web site construction and development services provided by U.K.-based Whatsonwhen, which was acquired in October 2006.
Several new books on finance, business, and leadership stood out among the year’s publications, including True North, Bill George’s follow-up to Authentic Leadership; The Only Three Questions That Count by Ken Fisher; and John Bogle’s The Little Book of Common Sense Investing, the third book in the bestselling Little Book series. Previously published titles continued to build momentum including Hedgehogging by Barton Biggs; Stock Investing For Dummies, 2nd edition, by Paul Mladjenovic; and The Five Dysfunctions of a Team by Patrick Lencioni. J.K. Lasser’s Income Tax 2006 strengthened its leadership position in the tax-preparation category. Weight Watcher’s New Complete Cookbook and The Bon Appetit Cookbook delivered consistently excellent results in a competitive field.
P/T continued to capitalize on strategic alliances and acquisitions, signing a multi-year agreement with Lincoln Center for the Performing Arts, Inc. for a series of books drawing on Lincoln Center’s extensive archives, educational expertise, and community of artists. The March acquisition of Anker Publishing brought P/T approximately 100 backlist books and a considerable number of forthcoming titles, as well as the Department Chair quarterly newsletter, in the area of professional development for faculty and administrators in higher education. The list complements a corresponding program published under Wiley’s Jossey-Bass imprint.
Online activity has generated healthy revenue growth, notably from advertising sales on branded Web sites such as Frommers.com, Dummies.com, and CliffsNotes.com. P/T also provides digital content to a variety of clients. Whatsonwhen drew on Frommer’s, For Dummies, and Unofficial Guides content for its travel-related Web services. P/T delivered nearly 1,400 articles based on For Dummies technology content to Yahoo! for its Yahoo! Tech, a consumer source for accessible technology information. Branded Wiley Web sites significantly increased the number of podcasts offered during the year, and Frommers.com launched an interactive mapping functionality.
Wiley Asia published a number of notable titles with global appeal during the year, including China CEO: Voices of Experience from 20 International Leaders by Juan Antonio Fernandez and Laurie Underwood; titles from the Mark Mobius Master Class series; and the English language edition of the official Chinese government annual report, China’s Banking and Financial Markets: The Internal Research Paper of the Chinese Government, by Robert Kuhn and Li Yang. Translation licensing in Simplified Chinese was expanded, with more than 150 P/T titles licensed to date, and a co-published Chinese language edition of the Leadership Practices Inventory launched in November 2006. Wiley India has developed a strong English language reprint program, primarily in technology and business, and has broadened the For Dummies reprint program to include consumer as well as technology titles.
P/T sales were strong in markets around the world. Wiley Europe’s sales gained momentum in continental Europe, with much of the growth coming from computing books. Strong retail performance in many Asian markets boosted results. There was strong demand for Wiley Canada’s real estate titles, frontlist releases, and For Dummies titles. Brodeur: Beyond the Crease, by hockey player Martin Brodeur, sold well globally.
During the year, Wiley Europe announced the formation of a multi-year publishing partnership with the Dana Centre, an extension of the Science Museum in London, for a series of books that examine technology-related news stories and their implications on everyday life. Wiley Europe also signed a contract with the Strategic Management Society to publish a new journal, Strategic Entrepreneurship.
Wiley’s global STM business provides researchers, scholars, professionals, librarians, and students access to Wiley journals, encyclopedias, books, databases, and laboratory manuals. STM publishes in the life and physical sciences, medicine, chemistry, statistics and mathematics, and electrical and electronics engineering. Going forward, Wiley’s STM segment will be known as Scientific, Technical, Medical, and Scholarly (STMS) as we merge our STM business with Blackwell.
Wiley’s U.S. STM revenue grew 8% in fiscal year 2007 to $222 million. Revenue growth was driven by journal subscriptions; non-subscription revenue, such as advertising and the sale of journal reprints; and STM reference books. New businesses and new and acquired publications, including the Journal of Orthopaedic Research, the controlled circulation journals Dialysis & Transplantation, The Hospitalist, and Clinical Cardiology, and three periodicals acquired from Carpe Diem Communications, Inc., contributed $5 million of the top-line growth for the year. Globally, STM revenue increased 8% for the full year.
Customers continue to take advantage of Wiley InterScience’s content (www.interscience.wiley.com). The number of visits during fiscal year 2007 was up nearly 24% over prior year, with strong uptake of the Pay-Per-View and ArticleSelect access options.
During the year, the Company expanded its ambitious program to tap into its wealth of legacy content; in addition to the journal backfile initiative, which is on track to digitize by the end of 2007 every Wiley journal ever published, there is now an active program to digitize selected landmark STM books, a collection of over 750 volumes from at least 21 book series that has contributed to a 30% increase in the number of book downloads. With the addition of the 750 back volumes, total online book content will comprise over one million pages. Additionally, legacy Major Reference Works (MRWs) are now being made available online through the new Wiley InterScience eMRW interface.
STM continued to build on its track record of successful partnerships with medical, scholarly, and professional associations. Highlights include an agreement to publish all five journals of the Royal Meteorological Society in the U.K., expanding a relationship established in 1980, as well as new and renewed agreements with the Mt.
Sinai School of Medicine, the International Society of Magnetic Resonance in Medicine, The American Society of Transplantation, Society of Academic Emergency Medicine, American Association of Anatomists, the British Journal of Surgery Society, and the Society of Biochemistry and Molecular Biology.
Wiley Europe renewed its contract with the National Health Service in the U.K. for the Cochrane National Site License and extended its publishing partnership with Symbian to include the formation of the new Symbian Academy program. In Asia, the Korean digest edition of Hepatology, published for the American Association for the Study of Liver Diseases, was launched, completing a local-language series that also includes Chinese and Japanese versions.
Wiley signed an agreement with the New York Public Library to provide public online access to over 300 peer-reviewed journals usually available only through academic or corporate collections. This pilot project will provide data about the use of high-level journal content in a public library setting. The Company also expanded its partnership with Skyscape, Inc., a leading provider of interactive healthcare solutions for desktop and mobile devices, to make the evidence-based medicine summaries of InfoPOEMs available to Skyscape’s customer base of more than 575,000 medical professionals.
Blackwell publishes journals, books, and online content in the sciences, technology, medicine, the social sciences, and the humanities. With operations in the U.K., the U.S., Australia, China, Denmark, Germany, Singapore, and Japan, Blackwell has long been considered among the industry’s best at building and maintaining strong relationships with scholarly and professional societies.
Blackwell revenue and operating income for the fourth quarter of fiscal year 2007 was $106 million and $6 million, respectively, both of which exceeded our expectations. Included in the fourth quarter results are nearly $6 million of amortization charges for intangible assets related to the acquisition. Financing costs for the acquisition were approximately $17 million in the quarter, and the acquisition was dilutive to quarterly earnings per share by $0.02 cents.
Since the acquisition was completed, Blackwell has announced the launch of a number of new journals and has formed new partnerships with scholarly and professional societies. New publications include Clinical and Translational Science, Regulation & Governance, Asian Social Work and Policy Review, and Archives of Drug Information.
Wiley Higher Education has strong positions in the sciences, engineering, computer science, mathematics, business and accounting, statistics, geography, hospitality, and the culinary arts, and a growing presence in modern languages, psychology, and education. Higher Education serves an expanding global market of professors, students, professionals, and lifelong learners. As a result of the success of WileyPLUS, our integrated online suite of teaching and learning resources, Higher Education is an increasingly online business.
The Company’s U.S. Higher Education revenue increased 4% to $162 million for fiscal year 2007, or 7% after adjusting for the effect of changes in inter-segment product prices. Strong growth in accounting (driven by new editions sold through WileyPLUS), social sciences, and sales of Microsoft Official Academic Course (MOAC) texts, were partially offset by softness in mathematics, science, and engineering. Global revenue increased 6%.
WileyPLUS sales for fiscal year 2007 were nearly double the prior year amount. Visits for the quarter approached one million. Digital-only sales—those not accompanied by purchases of textbooks—accounted for 20% of the total. WileyPLUS is currently used in 13 nations around the globe, gaining ground through institutional sales in India, the U.K., and the Middle East, and through adoptions in Australia, Canada, and Asia. WileyPLUS Assignment Editions were launched in Australia and New Zealand. The Wiley Faculty Network, which provides instructors with peer-to-peer guidance in the use of Wiley’s technology products, marked a 50% increase in attendance at its Guest Lectures.
Early in the fiscal year, Wiley became Microsoft’s official academic publishing partner worldwide for all MOAC texts, taking over the distribution of existing titles and collaborating with Microsoft on a new co-branded series of textbooks and e-learning products on Microsoft technologies. Sales have surpassed the expectations of both Wiley and Microsoft, with a strong global component that includes significant activity in Canada, the U.K., Asia, and Australia. An agreement is in place with the Ministry of Education in Malaysia to use MOAC titles in the curriculum at six universities. India is expected to be an important market as well.
In partnership with the National Geographic Society, Wiley launched the Wiley Visualizing series of introductory textbooks, which integrate rich visuals and media with text in a uniquely effective way that has been enthusiastically received by the market. Higher Education also announced partnerships with the CFA Institute, a global membership organization of investment practitioners and educators, to publish finance titles under the CFA Institute Investment Series brand; with Symbian, in the U.K., to create the new Symbian Academy program for accredited Higher Education institutions, drawing on content from across Wiley’s publishing programs; and with the George Lucas Educational Foundation, to co-produce a series of six textbooks employing “project based” learning, proven to increase self-direction and improve research and problem-solving skills.
We look forward to a successful new year, which will be a pivotal one as we merge Wiley’s STM business with Blackwell. We are confident Wiley will provide high-quality products and services to our authors, society partners, and customers, while generating the financial results required to make the acquisition a sound strategic investment for our Company and our shareholders.
Investments in enabling technologies are enhancing our ability to deliver must-have content to our customers, making it easier for them to discover Wiley’s products, services, capabilities, and people. Wiley is rapidly evolving from a product-centric company that delivered primarily print products to customers to a customer-centric company that is more closely connected to customers and more able to provide them with what they want when they want it.
Wiley is not a growth for growth’s sake Company. We aspire to be a valued and respected provider of products and services that make important contributions to advances in knowledge and understanding, a role that is essential to progress in a healthy and prosperous society. We are proud to lead our remarkable Company into a new century with the support and dedication of our colleagues around the world. Together, we will promote knowledge and understanding around the world by providing more access to more content by more people than ever before in our 200-year history.
William J. Pesce
President and Chief Executive Officer
Peter Booth Wiley
Chairman of the Board
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