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FORM 10-K SEC Filing WILEY JOHN SONS, INC. - JW.A Filing Date: Filing Period: June 28, 2006 April 30, 2006 DESCRIPTION Annual report which provides a comprehensive overview of the company for the past year Table of Contents 10-K - FY 2006 ANNUAL REPORT PART I ITEM 1. Business 4 PART I ITEM 1A. Risk Factors 5-7 PART I ITEM 1B. Unresolved Staff Comments 7 PART I ITEM 2. Properties 8 PART I ITEM 3. Legal Proceedings 8 PART I ITEM 4. Submission of Matters to a Vote of Security Holders 8 PART II ITEM 5. ITEM 6. ITEM 7. ITEM 7A. ITEM 8. ITEM 9. ITEM 9A. ITEM 9B. Market for the Company's Common Equity and Related Stockholder Matters and Selected Financial Data 9 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Quantitative and Qualitative Disclosures About Market Risk 9 Financial Statements and Supplemental Data 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 60 Controls and Procedures 60 Other Information 60 PART III ITEM 10. Directors and Executive Officers of the Registrant 61-62 PART III ITEM 11. Executive Compensation 62 PART III ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 62 PART III ITEM 13. Certain Relationships and Related Transactions 62 PART III ITEM 14. Principal Accounting Fees and Services 63 PART IV ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 63-65 PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Submission of Matters to a Vote of Security Holders PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Market for the Company's Common Equity and Related Stockholder Selected Financial Data Management's Discussion and Analysis of Financial Condition Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplemental Data Changes in and Disagreements with Accountants on Controls and Procedures Other Information PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain Relationships and Related Transactions Principal Accountant Fees and Services PART IV Item 15. SIGNATURES Exhibit 10.2 Exhibit 10.16 Exhibit 10.17 Exhibit 10.18 Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Exhibit 32.2 Exhibits, Financial Statement Schedules and Reports on Form 8-K FORM 10-K 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, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the transition period from Commission file number to 1-11507 JOHN WILEY & SONS, INC. (Exact name of Registrant as specified in its charter) NEW YORK -------------------------------------State or other jurisdiction of incorporation or organization 13-5593032 ---------------------------------I.R.S. Employer Identification No. 111 River Street, Hoboken, NJ -------------------------------------Address of principal executive offices 07030 ---------------------------------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 ----------------------------------------------Class A Common Stock, par value $1.00 per share Class B Common Stock, par value $1.00 per share Name of each exchange on which registered ----------------------New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: ----------------------------------------None Indicate by check mark if the registrant is a well-known defined in Rule 405 of the Securities Act. Yes |X| seasoned as No | | Indicate by check mark if the registrant is not required pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes | | issuer, to file reports 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 | | Indicate by check mark whether the Rule 12b-2 of the Exchange Act). Non-accelerated filer | | registrant is a shell company (as defined in 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, 2005, was approximately $1,616,462,936. 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, 2006 was 46,703,338 and 10,253,263 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 21, 2006, are incorporated by reference into Part III of this form 10-K. JOHN WILEY AND SONS, INC. AND SUBSIDIARIES FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 30, 2006 INDEX PAGE ---- PART I -----ITEM 1. ITEM 1A. ITEM 1B. ITEM 2. ITEM 3. ITEM 4. PART II ------ITEM 5. ITEM 6. ITEM 7. ITEM 7A. ITEM 8. ITEM 9. ITEM 9A. ITEM 9B. PART III -------ITEM 10. Business -------Risk Factors -----------Unresolved Staff Comments ------------------------Properties ---------Legal Proceedings ----------------Submission of Matters to a Vote of Security Holders --------------------------------------------------- Market for the Company's Common Equity and Related Stockholder Matters and -------------------------------------------------------------------------Issuer Purchases of Equity Securities --------------------------------------Selected Financial Data ----------------------Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------------------------------------------Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------Financial Statements and Supplemental Data -----------------------------------------Changes in and Disagreements with Accountants on Accounting and Financial Disclosure -----------------------------------------------------------------------------------Controls and Procedures ----------------------Other Information ----------------- Directors and Executive Officers of the Registrant -------------------------------------------------Executive Compensation ---------------------Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ---------------------------------------------------------------------------------------------Certain Relationships and Related Transactions ---------------------------------------------Principal Accounting Fees and Services -------------------------------------- ITEM 11. ITEM 12. ITEM 13. ITEM 14. PART IV ------ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K --------------------------------------------------------------- Signatures --------- 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 solutions to customers worldwide. Core businesses produce professional and consumer books and subscription products; scientific, technical, and medical journals, encyclopedias, books, and online products; and textbooks and educational materials, including integrated online teaching and learning resources, for undergraduate and graduate students, teachers and lifelong learners. 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, 2006, the Company employed approximately 3,600 persons on a full-time 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 -----------This section describes the major should be carefully considered. business Cautionary Statement Under the Private Act of 1995: risks to the Company and Securities Litigation Reform This 10-K and our Annual Report to Shareholders for the year ending April 30, 2006 report contains 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 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. 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 the United States and in many countries abroad for specified periods, in most cases the author's life plus 70 years, but in any event a minimum of 28 years for works published prior to 1978 and 50 years for works published thereafter. 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. 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 Although, the book publishing industry is concentrated in national, regional, and online bookstore chains, the Company's business is not dependent upon a single customer. No one book customer accounts for more than 7% of total consolidated revenue. The top 10 book customers, however, account for approximately 25% of total consolidated revenue and approximately 46% of total gross trade accounts receivable as of April 30, 2006. In the journal publishing business, subscriptions are often sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering and consolidate the subscription orders/billings with various publishers. Subscription agents account for approximately 17% of total consolidated subscription revenue and no one agent accounts for more than 7% of total consolidated revenue. Subscription agents generally collect cash in advance from subscribers and remit payments to journal publishers, including the Company, prior to the commencement of the subscriptions. While at fiscal year-end the Company had minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents may depend significantly on their financial condition and liquidity. Insurance for payment on these accounts is not commercially feasible and/or available. 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 taxation requirements and accounting standards, may adversely affect the Company's future financial results. Introduction of New Technologies or Products Media and publishing companies exist in rapidly changing technological and competitive environments. Therefore, 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. Competition for Market Share and Author 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 retaining our existing author relationships are also critical to our success. We believe the Company is well positioned to meet these business challenges with the strength of our brands, our reputation and innovative abilities. Effects of Inflation and Cost Increases The Company, from time to time, experiences cost increases reflecting, in part, general inflationary factors. To mitigate the effect of cost increases, the Company may take various steps to reduce development, production and manufacturing costs. In addition, the selling prices for our products may be selectively increased as marketplace conditions permit. 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 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 ------- Leased -----Australia Approx. Sq. Ft. --------------- Lease Expiration ---------------- Office Warehouse 33,000 68,000 2020 2016 Canada Office and Warehouse Office 87,000 18,000 2011 2010 England Warehouse 131,000 2012 New Jersey Corporate Headquarters 383,000 2017 New Jersey Distribution Center and Office 188,000 2021 New Jersey Warehouses 380,000 2021 Indiana Office 116,000 2009 California Office 58,000 2012 Singapore Office and Warehouse 61,000 2007 Owned ----Germany Office 57,000 England Office 50,000 United States: 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. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------No matters were submitted to the Company's security holders during the last quarter of the fiscal year ended April 30, 2006. 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 listed in the index on page 10 are incorporated herein by reference. Item 6. Selected Financial Data ----------------------The Selected Financial Data listed incorporated herein by reference. Item 7. in the index on Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------- page 10 is Management's Discussion and Analysis of Financial Condition and Results of Operations listed in the index on page 10 is 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 10 is incorporated herein by reference. Item 8. Financial Statements and Supplemental Data -----------------------------------------The Financial Statements and Supplemental Data listed in the index on page 10 is incorporated herein by reference. JOHN WILEY & SONS, INC., AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES -------------------------------------------------------- The following financial statements and information indicated are filed as part of this report: appearing on the pages Page(s) Management's Discussion and Analysis of Business, Financial Condition and Results of Operations............................................................................... 11-31 Results by Quarter (Unaudited)................................................................................ 32 Quarterly Share Prices, Dividends, and Related Stockholder Matters and Issuer Purchases of Equity Securities.......................................................................... 32 Selected Financial Data....................................................................................... 33 Management's Report on Internal Control over Financial Reporting ............................................. 34 Reports of Independent Registered Public Accounting Firm...................................................... 35-36 Consolidated Statements of Financial Position as of April 30, 2006 and 2005................................... 37 Consolidated Statements of Income for the years ended April 30, 2006, 2005, and 2004 ......................... 38 Consolidated Statements of Cash Flows for the years ended April 30, 2006, 2005, and 2004.............................................................. 39 Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended April 30, 2006, 2005, and 2004.............................................................. 40 Notes to Consolidated Financial Statements.................................................................... 41-58 Schedule II -- Valuation and Qualifying Accounts for the years ended April 30, 2006, 2005, and 2004...................................................... 59 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. 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 solutions to customers worldwide. Core businesses produce professional and consumer books and subscription products; scientific, technical, and medical journals, encyclopedias, books, and online products; and textbooks and educational materials, including integrated online teaching and learning resources, for undergraduate and graduate students, teachers and lifelong learners. 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 acquisitions which complement combination of title, imprint and the Company's existing businesses; business 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. Core Businesses --------------Professional/Trade: The Company's Professional/Trade business acquires, develops and publishes books and subscription products in all media, in the subject areas of business, technology, architecture, hospitality and culinary, psychology, education, travel, consumer reference, 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 Web sites. Global Professional/Trade publishing accounted for approximately 43% of total Company revenue in fiscal year 2006. 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. Revenue for the Company's worldwide Professional/Trade business grew at a compound annual rate of approximately 18% over the past five years. Publishing alliances and franchise products are central to the Company's strategy. The Company's 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, MTV, the Culinary Institute of America, the American Medical Association, the American Institute of Architects, Mergent, Inc., the National Restaurant Association Educational Foundation, the Leader to Leader Institute (formerly The Peter F. Drucker Foundation) and Morningstar, among many others. The Company's Professional/Trade customers are professionals, consumers, and students worldwide. Highly respected brands and extensive backlists are especially well suited for online bookstores such as Amazon.com. With their unlimited "virtual" shelf space, online retailers merchandise the Company's products for longer periods of time than brick-and-mortar bookstores. 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 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. Key Acquisitions: The Company's business plan includes organic growth as well as growth through acquisitions. Key strategic Professional/Trade acquisitions over the past five years include: (i) In fiscal year 2006, the publishing assets of Sybex, Inc., a leading publisher to the global information technology professional community for nearly 30 years. Sybex published about 100 new titles a year and maintained a backlist of over 450 titles in digital photography, operating systems, programming and gaming categories. (ii) In fiscal year 2003, a list of approximately 250 titles from Prentice Hall Direct, a unit of Pearson Education. These titles include a collection of practical, "hands-on" teaching resources, which complement the Company's renowned Jossey-Bass education series and its market-leading Janice Van Cleave series. (iii) In fiscal year 2002, the Company acquired Hungry Minds Inc., a leading publisher with an outstanding collection of respected brands, with such product lines as 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. (iv) In fiscal year 2002, the Company acquired Frank J. Fabozzi Publishing and Australian publisher, Wrightbooks Pty Ltd., both publishers of high quality finance books for the professional market. Scientific, Technical, and Medical (STM): The Company is a leading publisher for the scientific, technical, and medical communities worldwide including, scientists, researchers, clinicians, engineers, students and professors, and academic and corporate librarians. STM products include journals, major reference works, reference books and protocols, in print and online. STM publishing areas include the life and physical sciences, select medical areas, chemistry, statistics and mathematics, electrical and electronics engineering, and telecommunications. STM develops products for global distribution through multiple channels, including library consortia, subscription agents, bookstores, online booksellers, and direct sales to professional society members and other customers. Global STM represented 38% of total Company revenue in fiscal year 2006. STM's revenue grew at a compound annual rate of 9% over the past five years. Established commercially in 1999, the Company's web-based service, Wiley InterScience (www.interscience.wiley.com), offers online access to more than 400 journals and 2,000 major reference works, online books, Current Protocols laboratory manuals and databases, as well as a suite of professional and management resources. Wiley InterScience is based on a successful business model that features Enhanced Access Licenses. One to three years in duration, Enhanced Access Licenses provide academic and corporate customers with multi-site online access. The Company also offers other flexible pricing options such as, Basic Access licenses, which provide click-on access title-by-title to the Company's electronic journal content. Access is also provided through Pay-Per-View, which serves customers who wish to purchase individual articles or chapters. With over 24 million users in 90 countries around the globe, Wiley InterScience is one of the world's leading providers of scientific, technical, and medical content. Wiley InterScience takes advantage of technology to update content frequently, and it adds 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 2005, the Company announced an ambitious new program to digitize its entire historical journal content, dating back to the 1800s. Wiley's digitization of legacy content is designed to improve the research pathway and ensure content discovery is as seamless and efficient as possible. The initiative is scheduled for completion in 2007. The backfile collection, which is available online through Wiley InterScience, will span two centuries of scientific research and comprise over 7.5 million pages - one of the largest archives of its kind issued by a single publisher. As of April 30, 2006 approximately 70% of the Company's journal content was digitized and made available to customers. Publishing alliances play a major role in STM's success. The Company publishes the journals of prestigious societies, including the American Cancer Society's flagship publication, Cancer. These alliances bring mutual benefit, with the societies gaining Wiley's publishing and marketing expertise, while Wiley receives peer-reviewed content and enhanced visibility among society memberships. Key Acquisitions: In fiscal year 2006, the Company acquired InfoPoems Inc., a leading provider of evidence-based medicine (EBM). This acquisition along with the Cochrane Collaboration database provides the foundation for the Company's fast growing suite of EBM products designed to improve patient healthcare at the point of care. Evidenced-based medicine facilitates the effective management of patients through clinical expertise informed by best practice evidence that is derived from medical literature. In fiscal year 2002, the Company acquired A&M Publishing Ltd., a U.K.-based publisher for the pharmaceutical and health-care sectors, and GIT Verlag GmbH, a German publisher for the chemical, pharmaceutical, biotechnology, security, and engineering industries. These businesses derive revenue principally from advertising. From this base, the Company is building its program of advertising-based journal publications, including the acquisition of Dialysis and Transplantation in fiscal year 2006. Higher Education: The Company publishes educational materials for the higher education market in all media, focusing on courses in the sciences, geography, mathematics, engineering, accounting, business, economics, computer science, psychology, education, and modern languages. In Australia, the Company is also a leading publisher for the secondary school market. Higher Education customers include undergraduate, graduate, and advanced placement students, educators, and lifelong learners worldwide. Product is delivered principally through college bookstores, online booksellers, and Web sites. Globally, Higher Educational publishing generated 19% of total Company revenue in fiscal year 2006. Through organic growth and acquired products, both print and electronic, the Company's worldwide Higher Education publishing revenue grew at a compound annual rate of 5% 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 web site offers online learning materials with links to more than 4,000 companion sub-sites to support and supplement textbooks. Higher Education delivers high-quality online learning materials that offer more opportunities for customization and accommodate diverse learning styles. The prime example is WileyPlus, an activity-based interface that provides an integrated suite of teaching and learning resources on one web site. By offering an electronic version of a text along with supplementary materials, content provided by the instructor, and administrative tools, WileyPlus supports the full range of course-oriented activities online-planning, presentations, study, homework, and testing. The Company also supports online communities of interest such as 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 web in its sales and marketing efforts. The web 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. Key Acquisitions: In fiscal year 2003, the Company acquired the assets of Maris Technologies to support the Company's efforts to produce web-enabled products. This acquisition included the market-leading software Edugen, which provides the underlying technology for WileyPlus. Located in Moscow, the development facility is staffed by approximately 52 programmers and designers who had been employed in the space program of the former Soviet Union. In fiscal year 2002 the Company acquired publishing assets consisting of 47 higher education titles from Thomson Learning. The titles are in such areas as business, earth and biological sciences, foreign languages, mathematics, nutrition, and psychology. Publishing Operations --------------------Journal Products: The Company publishes over 2,400 journals and other subscription-based STM and Professional/Trade products, which accounted for approximately 33% of the Company's fiscal year 2006 revenue. Most journals are owned by the Company, in which case they may or may not be sponsored by a professional society. Some are owned by societies and published by the Company pursuant to contracts. Societies that sponsor or own such journals generally receive a royalty and/or other consideration. The Company usually 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 subscriptions result primarily from licenses for Wiley InterScience negotiated directly with customers or their subscription agent by the Company's sales representatives, direct mail or other advertising, promotional campaigns, and memberships in professional societies for those journals that are sponsored by such societies. Licenses range from one to three years in duration. Printed journals are generally mailed to subscribers directly from independent printers. Journal content is available online. Subscription revenue is generally collected in advance, and is deferred and recognized as earned when the related issue is shipped or made available online, or over the term of the subscription as services are rendered. Book Products: 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 their 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 sales potential. The Company may make advance payments against future royalties to authors of certain publications. 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 34% of the Company's fiscal year 2006 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. 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 experience. Sales of professional and consumer books also result from direct mail campaigns, telemarketing, online access, and advertising and reviews in periodicals. Adopted textbooks and related supplementary material (i.e., textbooks prescribed for course use) 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 fully 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 sales 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 2006 weighted average U.S. paper prices increased approximately 6% over fiscal year 2005. Management believes that adequate printing and binding facilities, and 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 digital format that can be used for both online and print products, which results 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 format 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 anticipates it will be necessary to increase its expenditures related to such new technologies over the next several years. The internet not only enables the Company to deliver content online, but also helps 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, and electronic uses of its content as well as advertising revenue from web sites such as Frommers.com. 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 agents as well as sales representatives in countries not served by the Company. John Wiley & Sons International Rights, Inc. 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 41% of the derived from non-U.S. markets. Company's fiscal year 2006 revenue was 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 and technical journals worldwide, as well as a leading commercial chemistry publisher at the research level; 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 growth, excluding unusual or one-time events, and considering current worldwide and regional economic conditions. Because of the Company's unique blend of businesses, industry statistics do not always provide meaningful comparisons. The Company does maintain market share statistics for publishing programs in Professional/Trade and Higher Education. For Professional/Trade, market share statistics published by BOOKSCAN, a statistical clearinghouse for book industry point of sale in the United States, are used. The statistics include survey data from all major retail outlets, mass merchandisers, small chain and independent retail outlets. For Higher Education, the Company subscribes to Management Practices Inc., which publishes customized comparative sales reports. Results of Operations --------------------Fiscal Year 2006 Summary Results For the full year, revenue advanced 7% over prior year to $1.0 billion, or 8% excluding foreign currency effects. The year-on-year growth was driven by all of Wiley's businesses around the world. Gross profit margin for fiscal year 2006 was 67.2% compared with 66.6% in the prior year. Improvements in STM, Higher Education and the European segment were partially offset by lower gross margins in Professional/Trade and other segments. Operating and administrative expenses increased 8% over the prior year. Foreign exchange accounted for approximately $1.9 million of the increase. Editorial, sales, marketing and distribution costs to support revenue growth, and investments in technology were partially offset by lower costs associated with certification of internal controls as required by Sarbanes-Oxley 404. Operating and administrative expenses as a percent of revenue were 51% in both years. Operating income advanced 8% to $152.7 million in fiscal year 2006 or 9% excluding adverse foreign currency effects. Revenue growth and improved gross margins were partially offset by higher amortization due to acquisitions. Operating margin was 14.6% compared with 14.5% in fiscal year 2005. The operating margin increase reflects improvement in gross margin due to product mix, partially offset by higher amortization of intangibles. Net interest expense and other increased $3.1 million to $8.8 million, mainly due to higher interest rates. The Company's effective tax rate was 23.3% in fiscal year 2006. Excluding the tax charges and benefits described in the non-GAAP financial disclosure, the effective tax rate for fiscal year 2006 increased to 33.2% as compared to 32.7% in fiscal year 2005. The increase was mainly due to higher effective foreign tax rates. Earnings per diluted share and net income for fiscal year 2006 on a US GAAP basis were $1.85 and $110.3 million, respectively. Excluding the tax adjustments, which are further described below, earnings per diluted share and net income for fiscal year 2006 on a Non-GAAP basis rose 10% to $1.61 and 5% to $96.1 million, respectively. Growth in earnings per diluted share reflects favorable operating performance and the Company's share repurchase program. Non-GAAP Financial Measures: The Company's management evaluates performance excluding unusual and/or nonrecurring events. The Company believes excluding such events provides a more effective and comparable measure of performance. Since adjusted net income and adjusted earnings per share are not a measure calculated in accordance with GAAP, it should not be considered as a substitute for other GAAP measures, including net income and earnings per share, as reported, as an indicator of operating performance. Adjusted net income and adjusted earnings per diluted charges and benefits are as follows: share excluding the tax Reconciliation of non-GAAP financial disclosure ----------------------------------------------- For the Years Ended April 30, Net income (in thousands) 2006 2005 --------------------------------------------------------------------------------As reported $110,328 $83,841 Tax (benefit) provision on dividends repatriated (7,476) 7,476 Resolution of tax matters (6,776) --------------------------------------------------------------------------------Adjusted $96,076 $91,317 ================================================================================= For the Years Ended April 30, Earnings per Diluted Share 2006 2005 --------------------------------------------------------------------------------As reported $1.85 $1.35 Tax (benefit) provision on dividends repatriated (.12) .12 Resolution of tax matters (.11) --------------------------------------------------------------------------------Adjusted $1.61 $1.47 ================================================================================= Pursuant to guidance issued by the Internal Revenue Service in May 2005, the Company recorded a tax benefit of approximately $7.5 million, or $0.12 per diluted share, in the first quarter of fiscal year 2006, and reduced income taxes due on the fiscal year 2005 repatriation of earnings from its European subsidiaries. As previously discussed in the Company's Annual Report filed on Form 10-K for fiscal year 2005, the tax benefit offsets a tax charge of $7.5 million recorded in the fourth quarter of fiscal year 2005, neither of which had a cash impact to the Company. A $6.8 million, or $0.11 per diluted share, tax benefit related to the favorable resolution of certain tax matters with tax authorities was also reported for the full year ending April 30, 2006. The Company's management excludes these tax items for comparative purposes so as to not distort the underlying operating performance of the Company. Cash flow provided by operating activities in fiscal year 2006 of $242.6 million was used to fund investing activities ($113.6 million), inclusive of $31.4 million for the acquisition of publishing assets; to acquire 2.8 million shares of treasury stock ($108.9 million); repay debt ($32.5 million); and for cash dividends to shareholders ($21.1 million). Fiscal Year 2006 Segment Results Professional/Trade (P/T): Dollars in thousands 2006 2005 % change -------------------------------------------------------------------Revenue Direct Contribution Contribution Margin $380,191 $106,971 28.1% $350,338 $102,326 29.2% Revenue growth of Wiley's U.S. P/T business accelerated 9% 5% throughout fiscal year 2006, culminating in a strong fourth quarter. Revenue for the full year advanced 9% to $380 million, while fourth quarter revenue reached a record $106 million, 13% over the same period in the prior year. Virtually all of P/T's publishing categories and sales channels contributed to the strong results, with standout performances by the technology, business, finance and architectural programs, as well as global rights and website advertising. P/T's finance and leadership programs, as well as the Sybex technology titles it acquired in May 2005, and the popularity of the Sudoku for Dummies series helped to deliver the record-setting results. The Sybex acquisition contributed approximately $9 million to revenue. Direct contribution to profit top-line results was partially product mix. was up 5% for the year. The improvement in offset by higher cost of sales mainly due to A number of successful titles contributed to the year's results, notably The Little Book That Beats the Market by Joel Greenblatt; Sudoku For Dummies, Volumes 1-3 by Andrew Herron and Edmund James; Weight Watcher's New Complete Cookbook; Betty Crocker Cookbook: Everything You Need to Know to Cook Today; and Hedgehogging by Barton Biggs. Several perennial favorites and new titles also made significant contributions, including Five Dysfunctions of a Team by Patrick Lencioni; his new title, Silos, Politics, and Turf Wars; Automatic Wealth by Michael Masterson; and The Party of the Century: The Fabulous Story of Truman Capote and His Black and White Ball by Deborah Davis. A new series, Frommer's Day by Day, and the first Frommers.com Podcast, successfully extended this key brand. Media attention was particularly focused on a number of titles tied to current affairs (Bird Flu by Marc Siegel and The Global Class War by Jeff Faux); popular products (The Bear Necessities of Business: Building a Company with Heart by Maxine Clark and Amy Joyner at the flagship Build-a-Bear store); or movies (Party of the Century by Deborah Davis which capitalized on the success of the movie, Capote), as well as well-known authors (The Poker Face of Wall Street, Aaron Brown and Hedgehogging by Barton Biggs). Aggressive marketing kept Wiley brands and titles in the public eye, including a major advertising campaign for Little Book That Beats the Market in The Wall Street Journal and Bloomberg radio; the annual For Dummies month promotions; and a pay-per-view webcast with Amazon.com, featuring author Pat Lencioni. More than 800 articles were adapted from the For Dummies text for licensing with Yahoo Tech, a new website that provides consumers with advice and information on technology. An agreement with Microsoft was signed to license content from seven of Wiley's top cookbooks, including How to Cook Everything by Mark Bittman, Cooking at Home with The Culinary Institute of America, and Mr. Boston: Official Bartender's and Party Guide by Mr. Boston, Anthony Giglio, and Steven McDonald). Mark Bittman received a James Beard Foundation Media Broadcast Award in the category National Television Food Show for his work as host of the PBS series, How to Cook Everything, which is tied in with the Wiley title of the same name. The Handbook of Human Resources Management in Government by Stephen Condrey won "Best Public Sector Human Resources Management Book" award of the American Society for Public Administration. Lee Shulman, President of the Carnegie Foundation for the Advancement of Teaching, won the prestigious Grawemeyer Award in Education for 2006, for The Wisdom of Practice. Scientific, Technical, and Medical (STM): Dollars in thousands 2006 2005 % change -------------------------------------------------------------------Revenue Direct Contribution Contribution Margin $206,008 $96,009 46.6% $190,515 $88,899 46.7% 8% 8% Wiley's U.S. STM business delivered consistently excellent results throughout fiscal year 2006, growing revenue over prior year by 8% to $206 million. Direct contribution to profit also rose by 8% for the year. Subscription and non-subscription revenue from journal backfiles, advertising, and commercial reprints contributed significantly to growth. The reference book program completed its second year of strong growth driven by strong title output and global market strength. STM also benefited from recent acquisitions of Dialysis and Transplantation, a medical journal and InfoPOEMs, a provider of evidence-based medicine content. Wiley InterScience, the Company's online service, reached a milestone midway through the fiscal year: more than one million journal articles are now available online. The value of this growing body of literature to the global research community can be quantified in the concurrent increase in the number of users, as well as the number of manuscripts submitted for publication. In fiscal year 2006, U.S. STM received approximately 9% more journal manuscripts and published 8% more journal pages than the previous year. More people gained access to Wiley InterScience by taking advantage of alternate purchasing programs, such as Pay-Per-View, which began offering individual article sales from the growing backfile collection during this year. At the end of the fiscal year, Wiley participated with Microsoft in the launch of Windows Live Academic Search pilot, which improves the search capabilities of journal content from Wiley and ten other major STM publishers. Important publications during the year include the inaugural issue of a pharmaceutical-company sponsored Chinese-language digest version of Hepatology; the Physics and Astronomy Backfile, which includes the oldest journal published by Wiley, Annalen der Physik, founded in 1799; the first two issues of the Journal of Hospital Medicine; and a refurbished Annals of Neurology. Also released during the fourth quarter were the new 18th edition of the Merck Manual; the 8th edition of The Wiley Registry of Mass Spectral Data; and a wide array of single and multi-volume reference works. During the fourth quarter, the Company reached an agreement with the Institute of Electrical and Electronics Engineers of Japan to publish a new English-language journal, IEEJ Transactions; extended its long-term publishing agreement for the Journal of Research in Science Teaching; and began publication of the Journal of Orthopedic Research in partnership with the Orthopedic Research Society. Higher Education: Dollars in thousands 2006 2005 % change ---------------------------------------------------------------------Revenue Direct Contribution Contribution Margin $156,235 $40,065 25.6% $150,905 $38,221 25.3% 4% 5% Wiley's U.S. Higher Education business increased 4% to $156 million in fiscal year 2006. Continuing to build on the strength experienced in the third quarter, fourth quarter revenue advanced 15% to $23 million compared to the previous year's quarter. Higher Education's direct contribution margin for the year improved 30 basis points to 25.6% mainly due to lower composition costs and inventory provisions. The mathematics, life sciences, engineering and computer science programs performed extremely well during the year, with strong showings by Tortora/Principles of Anatomy and Physiology; Black/Microbiology; Voet/Fundamentals of Biochemistry; Hughes-Hallet/Calculus; Anton/Calculus; Munson/Fluid Mechanics; and Horstman/Big Java. WileyPLUS continued to gain traction during fiscal year 2006, as more students and faculty around the world chose to use its customizable multi-format suite of content, teaching and learning tools to help them do homework, study for tests, assess coursework, and administer classes. Wiley has developed a wider array of products at varied price points. The Company is now offering over 50 titles in Wiley Desktop Editions, which are in downloadable e-text format, intended for students who want lower-priced versions of textbooks. Wiley began to produce Desktop Editions in partnership with VitalSource Technologies, Inc., during the second quarter, and expects to nearly double the number of titles in the program by calendar year-end. Soon after the end of the fiscal year, Wiley became Microsoft's sole publishing partner worldwide for all Microsoft Official Academic Course (MOAC) materials. Microsoft and Wiley will collaborate on a new co-branded series of textbook and e-learning products for the higher education market, to be released under Wiley-Microsoft logos. Wiley will also assume responsibility for the sale of existing MOAC titles. The new series will offer topics covering Windows Vista, Microsoft Office Systems 2007, and the Windows Server codenamed "Longhorn." All titles will be marketed globally and available in several languages. With Microsoft's position as the world's leading software company and Wiley's global presence in higher education, the alliance is an ideal strategic fit. Earlier in the year, National Geographic Higher Education extended its global alliance with the Society to create new products sold exclusively with Wiley textbooks and WileyPLUS. Europe: Dollars in thousands 2006 2005 % change % excluding FX ----------------------------------------------------------------------------------Revenue Direct Contribution Contribution Margin $292,462 $93,415 31.9% $268,857 $86,226 32.1% 9% 8% 12% 11% Fiscal Year 2006 was another strong year for Wiley's European-based companies, with revenues for the year advancing 9% over the prior year to $292 million, or 12% excluding foreign currency effects. Virtually all of Wiley Europe's businesses, product lines, and markets contributed to the performance. Strong performance was exhibited in P/T and STM book publishing, as well as journals. Global sales from the Sudoku For Dummies series contributed to the increase in P/T revenue. Direct contribution margin was essentially in line with the prior year's results. Best-selling books included products as diverse as the second edition of Encyclopedia of Inorganic Chemistry, edited by R. Bruce King, and the enormously popular Sudoku For Dummies and Kakuro For Dummies. The power of the For Dummies brand was evidenced by the publication of a six-figure print run of a custom mini-book for the World Cup, Winning on Betfair For Dummies. The German For Dummies program published 51 new titles and 49 reprints during fiscal year 2006. The expansion of Wiley Europe's publishing portfolio has opened up new markets and customer groups. The technology channel saw strong growth throughout the year with a series of agreements with major telecommunications corporations. In February, the Company entered a popular new market with the acquisition of Fernhurst Books, a best-selling list of manuals and guides on sailing, boating, and other nautical sports. The first seven titles of the Securities and Investment Institute series published during fiscal year 2006. Wiley Europe's new journals, small, an interdisciplinary journal on nanoscience and nanotechnology embracing materials science, physics, chemistry and biosciences and the related engineering areas ChemMedChem; and the Biotechnology Journal, all performed well. Chemistry-An Asian Journal, an alliance between Wiley-VCH, the German Chemical Society, and several major Asian chemical societies, gained traction during the year as new societies signed on, including The Singapore National Institute of Chemistry and the Chemical Society located in Taipei. The Cochrane Collaboration, an evidence-based medicine collection, available through Wiley InterScience, finished the year strongly reflecting Wiley's ability to increase revenue through the Company's multiple sales channels. To extend Wiley's product offering in evidence-based medicine, Wiley Europe and Duodecim Medical Publications Limited of Helsinki, Finland announced an expanded agreement to grant Wiley the exclusive publishing, sales, and distribution rights of its English language version of Evidence-Based Medicine Guidelines (EBM Guidelines). The guidelines are designed to be read on small screens, and are available via the Internet and through Personal Digital Assistants (PDA) devices. Asia, Australia, and Canada: Dollars in thousands 2006 2005 % change % excluding FX ----------------------------------------------------------------------------------Revenue Direct Contribution Contribution Margin $123,950 $26,747 21.6% $108,649 $24,868 22.9% 14% 8% 12% 3% Wiley's revenue in Asia, Australia, and Canada advanced 14% over the previous year to $124 million, or 12% excluding foreign currency effects. Higher Education and secondary school publishing in Australia and P/T sales in Asia and Canada drove the improvement over the prior year. Direct contribution to profit for the year increased 8%, or 3% excluding foreign currency effects. Revenue growth was partially offset by product mix in Canada and Asia. Wiley Asia experienced growth across all product lines, particularly in India, Japan and China. Wiley Canada's P/T performance was very strong and its Higher Education program was solid. In Australia, all three businesses delivered strong results. At the end of the third quarter, Wiley Asia acquired the remaining outstanding shares of Wiley Dreamtech (India) Private LTD. The acquisition is an important step in the Company's plans to grow Wiley's presence in India, extending its sales and marketing reach and building local publishing capabilities in an important and rapidly growing market. Wiley acquired a majority interest in Dreamtech in 2001 as part of its highly successful acquisition of Hungry Minds, Inc. Wiley Australia was once again named Secondary Publisher of the Year by the Australian Publishers Association and Higher Education Publisher of the Year by the Australian Campus Booksellers Association, for the 9th and 8th