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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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to
Commission file number 1-11507
JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5593032
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
111 River Street, Hoboken, NJ 07030
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Address of principal executive offices Zip Code
Registrant's telephone number including area code (201) 748-6000
-----------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------------------- ------------------------------------
Class A Common Stock, par value $1.00 per share New York Stock Exchange
Class B Common Stock, par value $1.00 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 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 _____
The number of shares outstanding of the Registrant's Class A and Class B Common
Stock, par value $1.00 per share as of May 31, 2002, was 50,169,182 and
11,639,564 respectively, and the aggregate market value of such shares of Common
Stock held by non-affiliates of the Registrant as of such date was $989,951,417
based upon the closing market price of the Class A and Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive proxy Statement to be filed with the Commission on
or about August 8, 2002 for the Annual Meeting of Shareholders to be held on
September 19, 2002, (the "2002 Proxy Statement") is, to the extent noted below,
incorporated by reference in Part III.
PART I
Item 1. Business
The Company, founded in 1807,is a New York corporation incorporated 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 must-have content and services to customers worldwide. Core
businesses include professional and consumer books and subscription
services; scientific, technical and medical journals, encyclopedias,
books, and online products and services; and educational materials for
undergraduate and graduate students and lifelong learners. Technology
is enabling the Company to make its content more accessible to its
global communities of interest. The Company has publishing, marketing
and distribution centers in the United States, Canada, Europe, Asia
and Australia.
During fiscal 2002, the Company acquired several publishing properties
(as more fully discussed below) for purchase prices aggregating
approximately $232 million net of cash acquired, including the
acquisition of Hungry Minds, Inc. (Hungry Minds) for approximately
$185 million, the largest acquisition in the Company's history.
Professional/Trade Publishing
The Company's Professional/Trade program includes books and
subscription products, both print and electronic, for professionals
and consumers. Subject areas include business, technology,
architecture, psychology, education, and consumer categories including
culinary, travel and reference. Products are developed for worldwide
distribution through multiple channels, including bookstores, the
Internet, and direct marketing. Professional/Trade publishing
accounted for 40% of total revenues in fiscal 2002.
During the year, the Company acquired Hungry Minds, a leading
publisher with an outstanding collection of respected brands including
the For Dummies and Unofficial Guide series, the technological Bible
and Visual series, Frommer's travel guides, CliffsNotes, Webster's New
World Dictionary, Betty Crocker, Weight Watchers, and other
market-leading brands. Hungry Minds has 2,500 active titles which are
available in 39 languages. In addition, the Company acquired Frank J.
Fabozzi Publishing, and Australian publisher, Wrightbooks Pty Ltd.,
both publishing high-quality finance books for the professional
market.
Shortly after the close of the fiscal year, the Company acquired a
list of approximately 250 titles from Prentice Hall Direct, a unit of
Pearson Education, for approximately $6.5 million. This acquisition
brings 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.
Publishing alliances and franchise products are central to the
Company's strategy. The Company's alliance program brings together
Wiley's product development, sales, marketing, and distribution
capabilities with a partner's content, brand name recognition, and/or
technology. Alliance partners include The Culinary Institute of
America, The American Institute of Architects, Ernst & Young,
CNBC/NBC, and The Peter F. Drucker Foundation, among many others.
The Internet is playing a growing role in the Company's business. The
Company's highly respected brands and extensive backlist are
especially well suited for online bookstores. With their unlimited
"virtual" shelf space, online retailers merchandise the Company's
products for longer periods of time than brick-and-mortar bookstores.
Demand for Web-based electronic products has emerged in professional
markets with the advent of broadband Internet access. In fiscal 2002,
the Company launched online products such as ExpressExec, encompassing
approximately 100 management books available in electronic and print
formats, and TheraForms downloadable forms from Wiley's practice
management books. Additional Web-based products will be launched in
fiscal 2003. The Professional/Trade segment has agreements with
service providers for online distribution of about 750 new frontlist
titles per year, as well as Internet and wireless delivery of many
publications.
Scientific, Technical, and Medical (STM) Publishing
The Company is a leading publisher for the scientific, technical and
medical communities worldwide. Its STM programs encompass journals,
encyclopedias, books and online products and services in subjects such
as the life and medical sciences, chemistry, statistics and
mathematics, electrical and electronics engineering, and select
medical areas with particular emphasis on cancer medicine. The Company
develops products for global distribution. STM publishing represented
38% of total revenues in fiscal 2002.
Wiley InterScience, the Company's Web-based service, offers fully
searchable online access to several products including over 350 of the
Company's journals, 30 major reference works such as multi-volume
encyclopedias and Current Protocols, the widely used laboratory manual
series, as well as 250 STM books through OnlineBooks, a new feature.
Access to the information is obtained through licenses designed to
meet the needs of academic and corporate customers. The Company
continues to add content and features to Wiley InterScience to add
value for customers and to build its revenue base. Wiley InterScience
includes full-text HTML versions of journal content, allowing more
advanced search and navigation options, and providing customers with
greater choice and control over the information they retrieve. Wiley
InterScience has developed a mobile Internet service for certain of
its journals called MobileEditions to provide tables of contents and
abstracts from Wiley InterScience directly to personal and wireless
handheld devices and web-enabled phones. Other features of Wiley
InterScience include EarlyView, which provides customers with online
access to individual articles well in advance of the print issue, and
ContentAlerts and RoamingAccess, which enables researchers to access
the scientific literature they need, as soon as it is available,
wherever and whenever they want. ArticleSelect allows subscribers with
Enhanced Access Licenses to gain access to individual journal
articles. In addition, Wiley InterScience includes BoldIdeas, an
online collection of 40 business and environmental management
periodicals, and is an excellent example of the Company's ability to
leverage Wiley InterScience beyond the STM market.
Customer use is being fueled by linking arrangements with alliances
and third-party providers. The Company has an alliance with over 130
other publishers called CrossRef to facilitate the research process.
CrossRef is an electronic linking system that allows a reader to click
on a reference in a journal published by one participant and go
directly to the referenced article, even if it is published by another
participant and located on that publisher's server. Additional linking
arrangements include EBSCO Online, PubMed, Celera Genomics, ISI's Web
of Science and Chemical Abstract Services. An agreement also exists
with Maruzen Knowledge Worker to provide a Japanese interface to
enable searching and browsing Wiley InterScience in that language. STM
also has communities of interest Websites in spectroscopy, diabetes,
the pharmaceutical industry and polymer sciences, and announced its
participation in an electronic journal archiving project sponsored by
the Mellon Foundation.
During fiscal 2002, the Company acquired A&M Publishing Ltd., a U.K.
based publisher for the pharmaceutical and healthcare sectors, and GIT
Verlag GmbH, a German publisher for the chemical, pharmaceutical,
biotechnology, security and engineering industries.
Wiley and five other major journal publishers announced a joint
initiative with the World Health Organization (WHO) to provide medical
schools and research institutions in nearly 100 developing countries
with access to vital scientific information they otherwise could not
afford. Effective January 2002, many of the world's leading STM
journals are being made available to these schools and institutions
through the Internet for free or at deeply discounted rates. WHO
described the initiative as "perhaps the biggest step ever taken
towards reducing the health information gap between rich and poor
countries."
Higher Education
The Company publishes educational materials in print and electronic
formats, for undergraduate and graduate students and lifelong
learners. Higher Education focuses on the sciences, mathematics,
engineering, and accounting, with growing positions in business,
computer science, psychology, education, nutrition and modern
languages. In Australia, the Company is also a leading publisher for
the secondary school market. Educational publishing generated 22% of
total revenues in fiscal 2002.
During the year, the Company acquired 47 titles from Thomson Learning
in business, earth and biological sciences, foreign languages,
mathematics, nutrition, and psychology.
The Higher Education segment continues to invest in technology to help
teachers teach and students learn. With approximately 1,700 Web sites
that support its texts, in addition to many Web-based free and
for-sale supplements, Higher Education has launched a number of
products that integrate technology and print to provide students and
instructors with tools to improve outcomes or meet specific
objectives. An example is eGrade, a Web-based software product that
allows students to do independent, self-paced practice homework with
immediate scoring and individualized feedback. The Company also
introduced Calculus Machina, a step-by-step, Web-based calculus
tutorial that will be customized to additional subjects. To combat
used text book sales, which is a continuing industry-wide problem,
Higher Education has introduced the Web Access Licensing program,
which is a fee-based service that provides access to online
supplements for students. During fiscal 2002, the Company published
the first Interactive Homework Editions a new product that integrates
end-of-chapter problem solving with an online interactive e-book. The
IHE program was successfully pilot-tested at Penn State.
The Company continues to develop new formats to create more value for
teachers and students. "Active Learning Editions" with brief texts and
integrated study tools were introduced in fiscal 2002 as a
lower-priced alternative to traditional textbooks. The Faculty
Resource Network, which provides professor-to-professor support for
the Company's textbooks and technology products, was expanded with the
addition of Webcast seminars on technology and teaching topics. One of
the trends in higher education is toward distance learning - students
taking online courses either on or off campus. Higher Education has
initiated Wiley eLearning to provide distance learning courses and
online teaching cases. It is anticipated that the first courses will
be made available in fiscal 2003.
Higher Education is leveraging the web in its sales and marketing
efforts to reach students and faculty at universities worldwide
through the use of interactive electronic brochures and e-mail
campaigns.
Publishing Operations
Journal Products
The Company publishes over 400 journals and other subscription-based
products, which accounted for approximately 31% of the Company's
fiscal 2002 revenues. 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 under an
agreement. Societies which 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
which 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 professional society, as applicable.
Journal subscriptions result primarily from licenses for the Wiley
InterScience service negotiated directly with customers by the
Company's sales representatives, direct mail and other advertising and
promotional campaigns, renewals which are solicited annually either
directly or by companies commonly referred to as independent
subscription agents, and memberships in the professional societies for
those journals that are sponsored by such societies.
Printed journals are generally mailed to subscribers directly from
independent printers. Journal content for virtually all of the
journals is also made available online through licenses, which
generally range from one to three years.
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, but many are prepared as a result of suggestions or
solicitations by editors or advisors. The Company enters into
agreements with authors which state the terms and conditions under
which the materials will be published and under which other related
rights may be exercised, 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. In general, royalties
for textbooks and consumer books are higher than royalties for
research and reference works. The Company makes advances against
future royalties to authors of certain of its publications. The
Company continues to add new titles, revise existing titles, and
discontinue the sale of others in the normal course of its business.
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 2002
domestic book publishing revenues were from titles published or
revised in that 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 professional practitioners; and research
institutions, jobbers, libraries (including public, professional,
academic, and other special libraries), industrial organizations, and
governmental agencies. The Company employs sales representatives who
call upon independent bookstores, national and regional chain
bookstores, wholesalers and jobbers. Trade sales to bookstores,
wholesalers and jobbers are generally made on a fully returnable
basis. Sales of professional and consumer books also result from
direct mail campaigns, telemarketing, online access, and advertising
and reviews in periodicals.
Adopted textbooks (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 which serve such institutions and their
students. Textbook sales are generally made on a fully returnable
basis. 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
negatively 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. Paper
prices on average decreased slightly during fiscal 2002. The Company
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 performs marketing and distribution services for other
publishers under agency arrangements. It also engages in co-publishing
of titles with foreign publishers and in publication of adaptations of
works from other publishers for particular markets. The Company also
receives licensing revenues from photocopies, reproductions and
electronic uses of its content.
The Company is increasingly developing content in digital format that
can be used for both online and print products, which results in
productivity and efficiency savings, as well as being able to offer
customized publishing and print-on-demand products. Book content is
increasingly being made available online through Wiley InterScience
and other platforms, and in eBook format through licenses with
alliance partners. The Company is also developing 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 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.
International Operations
The Company's publications are sold throughout most of the world
through subsidiaries located in Europe, Canada, Australia and Asia,
through agents, and directly from the United States. Subsidiaries
market their indigenous publications, as well as publications produced
by the U.S. operations and other subsidiaries and affiliates. The
Export Sales Department in the United States markets the Company's
publications through agents as well as foreign sales representatives
in countries not served by a subsidiary. John Wiley & Sons
International Rights, Inc. sells foreign reprint and translations
rights. The Company publishes, or licenses others to publish, its
products which are distributed throughout the world in foreign
languages. Approximately 36% of the Company's fiscal 2002 revenues
were derived from non-U.S. markets.
Copyrights, Patents, Trademarks, and Environment
Substantially all of the Company's publications are protected by
copyright, either in its own 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 35
years for works published thereafter.
The Company does not own any other material patents, franchises, or
concessions, but does have registered trademarks and service marks in
connection with its publishing businesses. The Company's operations
are generally not affected by environmental legislation.
Concentration of Credit Risk
The Company's business is not dependent upon a single customer. The
journal subscription business is primarily sourced through independent
subscription agents who facilitate the journal ordering process by
consolidating the subscription orders/billings of each subscriber with
various publishers. Monies are generally collected in advance from
subscribers by the subscription agents and are remitted to the journal
publishers, including the Company, generally prior to the commencement
of the subscriptions. Although at fiscal year-end the Company`s credit
risk exposure to these agents was not material, future calendar year
subscription receipts from these agents are highly dependent on their
financial condition and liquidity. Subscription agents account for
approximately 25% of total consolidated revenues and no one agent
accounts for more than 7% of total consolidated revenues. The book
publishing business has witnessed a significant concentration in
national, regional and online bookstore chains in recent years.
Although, no one book customer accounts for more than 8% of total
consolidated revenues, the top ten book customers account for
approximately 31% of total consolidated revenues and approximately 48%
of total gross trade accounts receivable at April 30, 2002.
Competition 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 believed to be 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, for
textbooks and certain trade books, timely delivery of products to
retail outlets and consumers. Recent years have seen a consolidation
trend within the publishing industry, including the acquisition of
several publishing companies by larger publishers and other companies.
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 for the "hardside"
disciplines, i.e., sciences, engineering and mathematics; and a
leading publisher in its targeted professional markets. The Company
knows of no reliable industry statistics which would enable it to
determine its share of the various foreign markets in which it
operates. The Company believes that the percentage of its sales in
markets outside the United States is higher than that of most of the
United States-based publishers.
Employees
As of April 30, 2002, the Company employed approximately 3,100 persons
on a full-time basis worldwide.
Financial Information About Industry Segments
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements listed in the attached index is 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 listed in the attached index is incorporated
herein by reference.
Executive Officers
Set forth below as of April 30, 2002 are the names and ages of all
executive officers of the Company, the period during which they have
been officers, and the offices presently held by each of them.
Name and age Officer since Present office
Bradford Wiley II 1993 Chairman of the Board since
61 January 1993 and a Director
William J. Pesce 1989 President and Chief Executive
51 Officer and a Director since May
1, 1998, (previously Chief
Operating Officer;Executive Vice
President, Educational and
International Group)
Ellis E. Cousens 2001 Executive Vice President and
50 Chief Financial
and Operations Officer since
March 2001(previously Senior
Vice President, Chief Financial
Officer of Bookspan, a
Bertelsmann AG joint venture,
from March 2000; Vice President,
Finance and Strategic Planning
of Bertelsmann AG from March
1999; Vice President, Chief
Financial Officer of BOL.com, a
subsidiary of Bertelsmann AG,
from August 1998; Vice President
Financial Planning and Analysis
of Reader's Digest Association,
Inc. from May 1997)
Stephen A. Kippur 1986 Executive Vice President and
55 President, Professional and
Trade Publishing since July 1998
(previously Executive Vice
President and Group President,
Professional, Reference & Trade)
William Arlington 1990 Senior Vice President, Human
53 Resources since June 1996
Peter W. Clifford 1989 Senior Vice President, Finance,
56 and Chief Accounting Officer
since June 1996
Timothy B. King 1996 Senior Vice President, Planning
62 and Development since June 1996
(previously Vice President
Planning and Development)
Richard S. Rudick 1978 Senior Vice President, General
62 Counsel since June 1989
Deborah E. Wiley 1982 Senior Vice President, Corporate
56 Communications since June 1996
Edward J. Melando 2002 Vice President, Corporate
46 Controller since April 2002
(previously Vice President,
Corporate Controller of Journal
Register Company from August
2000; Corporate Controller of
Asarco Incorporated from April
1999; Commercial Director of
Asarco Incorporated from June
1997)
The Board of Directors has elected Peter Booth Wiley, age 59 and
current Board member, as Chairman of the Board effective September 19,
2002, succeeding Bradford Wiley II. Each of the other officers listed
above will serve until the next organizational meeting of the Board of
Directors of the Company and until each of the respective successors
is duly elected and qualified. Deborah E. Wiley is the sister of
Bradford Wiley II and Peter Booth Wiley. There is no other family
relationship among any of the aforementioned individuals.
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).
Lease Expiration
Location Purpose Approx. Sq. Ft. Date
-------- ------- --------------- ----
Domestic-Leased
New Jersey Corporate Headquarters 383,000 2017
Offices
New York Corporate Headquarters 232,000 2003
Offices
New York Editorial and Administrative 57,000 2010
Offices
New Jersey Distribution Center 188,000 2007
and Office
New Jersey Warehouses 303,000 2006
Indiana Editioral and Administrative 120,000 2009
Offices
California Office 38,000 2012
Foreign-owned
Germany Office 81,000
Foreign-leased
Australia Office 34,000 2006
Warehouse 105,000 2009
Canada Office 15,000 2003
Warehouse 64,000 2003
England Office 71,000 2012
Warehouse 96,000 2012
Singapore Office and Warehouse 52,000 2004
All of the buildings and the equipment owned or leased are believed to
be in good condition and are generally fully utilized.
The New York corporate headquarters offices will be vacated in fiscal
year 2003 as a result of the relocation of the Company's headquarters
to New Jersey. In addition, the Company has entered into an agreement
to purchase a 50,000 square foot office building in England upon
completion of construction which is scheduled for fiscal year 2003.
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, 2002.
PART II
Item 5. Market for the Company's Common
Equity and Related Stockholder Matters
The Quarterly Share Prices, Dividends and Related Stockholder Matters
listed in the attached index are incorporated herein by reference.
Item 6. Selected Financial Data
The Selected Financial Data listed in the attached index is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and
Results of Operations listed in the attached index 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 attached index is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in the attached
index are incorporated herein by reference.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
On April 15, 2002, the Board of Directors of the Company upon the
recommendation of its Audit Committee decided to no longer engage
Arthur Andersen LLP ("Arthur Andersen" or "AA") as the Company's
independent public accountants and engaged KPMG LLP (KPMG) to serve as
the Company's independent public accountants for the fiscal year
ending April 30, 2002.
Arthur Andersen's reports on the Company's consolidated financial
statements for each of the fiscal years ended April 30, 2001 and 2000
did not contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or
accounting principles.
During the fiscal years ended April 30, 2001 and 2000 and through
April 15, 2002 there were no disagreements between the Company and
Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which,
if not resolved to AA's satisfaction, would have caused them to make
reference to the subject matter in connection with their report on the
Company's consolidated financial statements for such years; and there
were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.
The Company provided Arthur Andersen with a copy of the foregoing
disclosures. Attached as Exhibit 16 is a copy of AA's letter, dated
April 15, 2002, stating its agreement with such statements.
During the fiscal years ended April 30, 2001 and 2000 and through
April 15, 2002 the Company did not consult KPMG with respect to the
application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might
be rendered on the Company's consolidated financial statements, or any
other matters or reportable events as set forth in Items 304(a)(2)(i)
and (ii) of Regulation S-K.
PART III
Item 10. Directors and Executive Officers
The information regarding the Board of Directors on pages 3 to 8 of
the 2002 Proxy Statement is incorporated herein by reference, and
information regarding Executive Officers appears in Part I of this
report.
Item 11. Executive Compensation
The information on pages 9 to 15 of the 2002 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
The information on pages 2, 3, 7and 8 of the 2002 Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
(a) Financial Statements and Schedules
(1) List of Financial Statements filed. The financial
statements listed in the attached index are filed as
part of this Report.
(2) List of Financial Statement Schedules filed. The
financial statement schedules listed in the attached
index are filed as part of this Report.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated April 15, 2002
relating to the change of the Company's independent public
accountants from Arthur Andersen LLP to KPMG LLP for the
fiscal year ended April 30, 2002.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of August 12, 2001 among
the Company, HMI Acquisition Corp. and Hungry Minds, Inc.
(incorporated by reference to the Company's Report on Form 8-K
dated as of August 12, 2001).
2.2 Amendment No. 1 to the Asset Purchase Agreement dated as of April
15, 1999 between the Company and Pearson Inc. (incorporated by
reference to the Company's Report on Form 8-K dated as of May 10,
1999).
2.3 Asset Purchase Agreement dated as of April 15, 1999 between the
Company and Pearson Inc. (incorporated by reference to the
Company's Report on Form 8-K dated as of May 10, 1999).
2.4 Stock Purchase Agreement dated as of May 21, 1999 between the
Company and Pearson Education, Inc. (incorporated by reference to
the Company's Report on Form 8-K dated as of May 21, 1999).
3.1 Restated Certificate of Incorporation (incorporated by reference
to the Company's Report on Form 10-K for the year ended April 30,
1992).
3.2 Certificate of Amendment of the Certificate of Incorporation
dated October 13, 1995 (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 1997).
3.3 Certificate of Amendment of the Certificate of Incorporation
dated as of September 1998 (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended
October 31, 1998).
3.4 Certificate of Amendment of the Certificate of Incorporation
dated as of September 1999 (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended
October 31, 1999).
3.5 By-Laws as Amended and Restated dated as of September 1998
(incorporated by reference to the Company's Report on Form 10-Q
for the quarterly period ended October 31, 1998).
10.1 $300,000,000 Credit Agreement dated as of September 21, 2001
among the Company and the Lenders From Time to Time Parties
Hereto, UBS AG Stamford Branch, as Administrative Agent and UBS
Warburg LLC, as Arranger (incorporated by reference to the
Company's Report on Schedule TO/A Amendment No. 5 dated September
21, 2001).
10.2 Credit agreement dated as of November 15, 1996 among the Company,
the Banks from time to time parties hereto, and Morgan Guaranty
Trust Company of New York, as Agent (incorporated by reference to
the Company's report on Form 10-Q for the quarterly period ended
October 31, 1996).
10.3 Agreement of Lease dated as of August 4, 2000 between Block A
South Waterfront Development L.L.C., as Landlord, and the
Company, as Tenant (incorporated by reference to the Company's
Report on Form 10-Q for the quarterly period ended July 31,
2000).
10.4 Agreement of Lease dated as of May 16, 1985 between Fisher 40th &
3rd Company and Hawaiian Realty, Inc., Landlord, and the Company,
Tenant (incorporated by reference to the Company's Report on Form
10-K for the year ended April 30, 1985).
10.5 Long Term Incentive Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 6, 1999).
10.6 Executive Annual Incentive Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 6, 1999).
10.7 1991 Key Employee Stock Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 8, 1991).
10.8 Amendment to 1991 Key Employee Stock plan dated as of September
19, 1996 (incorporated by reference to the Company's Definitive
Proxy Statement dated August 9, 1996).
10.9 1987 Incentive Stock Option and Performance Stock Plan
(incorporated by reference to the Company's Definitive Proxy
Statements dated August 10, 1987).
10.10 Amendment to 1987 Incentive Stock Option and Performance Stock
Plan dated as of March 2, 1989 (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 1989).
10.11 1990 Director Stock Plan as Amended and Restated as of June 22,
2001 (incorporated by reference to the Company's Definitive Proxy
Statement dated August 8, 2001)
10.12 1989 Supplemental Executive Retirement Plan (incorporated by
reference to the Company's Report on Form 10-K for the year ended
April 30, 1989).
10.13 Form of the Fiscal Year 2000 Qualified Executive Long Term
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2000).
10.14 Form of the Fiscal Year 2000 Qualified Executive Annual
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2000).
10.15 Form of the Fiscal Year 2000 Executive Annual Strategic
Milestones Incentive Plan (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 2000).
10.16 Form of the Fiscal Year 2001 Qualified Executive Long Term
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2001).
10.17 Form of the Fiscal Year 2001 Qualified Executive Annual
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2001).
10.18 Form of the Fiscal Year 2001 Executive Annual Strategic
Milestones Incentive Plan (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 2001).
10.19 Form of the Fiscal Year 2002 Qualified Executive Long Term
Incentive Plan.
10.20 Form of the Fiscal Year 2002 Qualified Executive Annual
Incentive Plan.
10.21 Form of the Fiscal Year 2002 Executive Annual Strategic
Milestones Incentive Plan.
10.22 Senior Executive Employment Agreement dated as of January 8,
1998 between William J. Pesce and the Company (incorporated by
reference to the Company's Report on Form 10-K for the year ended
April 30, 1998).
10.23 Senior Executive Employment Agreement dated as of July 1, 1994
between Stephen A. Kippur and the Company (incorporated by
reference to the Company's Report on Form 10-Q for the quarterly
period ended July 31, 1995).
10.24 Amendment No. 1 to Stephen A. Kippur's Senior Executive
Employment Agreement dated as of July 1, 1994 (incorporated by
reference to the Company's Report on Form 10-Q for the quarterly
period ended July 31, 1995).
10.25 Executive Employment Agreement dated as of February 21, 2001
between Ellis E. Cousens and the Company.
10.26 Employment Agreement letter dated as of January 16, 1997 between
Richard S. Rudick and the Company (incorporated by reference to
the Company's Report on Form 10-K for the year ended April 30,
1997).
10.27 Employment Agreement letter dated as of January 16, 1997 between
Timothy B. King and the Company (incorporated by reference to the
Company's Report of Form 10-K for the year ended April 30, 1997).
16 Letter of Arthur Andersen LLP regarding change in certifying
accountant.
22 List of Subsidiaries of the Company.
23 Consent of Independent Public Accountants (included in this
report as listed in the attached index).
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements and information appearing on the pages
indicated are filed as part of this Report:
Page(s)
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 16 - 26
Results by Quarter (Unaudited).................................................. 27
Quarterly Share Prices, Dividends and Related Stockholder Matters............... 27
Selected Financial Data......................................................... 28
Reports of Independent Public Accountants and
Consent of Independent Public Accountants............................ 29 - 30
Consolidated Statements of Financial Position
as of April 30, 2002, and 2001....................................... 31
Consolidated Statements of Income and Retained Earnings
for the years ended April 30, 2002, 2001 and 2000.................... 32
Consolidated Statements of Comprehensive Income
for the years ended April 30, 2002, 2001 and 2000.................... 32
Consolidated Statements of Cash Flows for the
years ended April 30, 2002, 2001 and 2000............................ 33
Notes to Consolidated Financial Statements...................................... 34 - 48
Schedule II - Valuation and Qualifying Accounts
for the years ended April 30, 2002, 2001 and 2000................ 49
Other schedules are omitted because of 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
Financial Condition and Results of
Operations
Results of Operations
Fiscal 2002 Compared to Fiscal 2001
The Company continued to achieve strong growth in revenues and operating income
during fiscal 2002, although income was adversely affected by an unusual charge
related to the upcoming relocation of the Company's headquarters to Hoboken, New
Jersey as more fully described below.
During fiscal 2002, the Company acquired several publishing properties for
purchase prices aggregating $232.4 million net of cash acquired, including the
acquisition of Hungry Minds, Inc. (Hungry Minds) on September 21, 2001 for
approximately $184.9 million, the largest acquisition in the Company's history.
Hungry Minds is a leading publisher with an outstanding collection of respected
brands. The Company also acquired 47 higher education titles from Thomson
Learning; A&M Publishing Ltd. a U.K.-based publisher for the pharmaceutical and
healthcare sectors ; GIT Verlag GmbH, a German publisher for the chemical,
pharmaceutical, biotechnology, security and engineering industries; and Frank J.
Fabozzi Publishing and an Australian publisher, Wrightbooks Pty Ltd., both
publishing high-quality finance books for the professional market.
Hungry Minds' performance has been better than expected, and the integration of
operations has proceeded smoothly. By fiscal year-end, the Company had increased
the distribution of Hungry Minds' products, especially through online channels.
Hungry Minds contributed $91 million to revenues in fiscal 2002 and was
accretive to earnings.
The unusual charge related to the relocation of the Company's headquarters
amounted to approximately $12.3 million, or $7.7 million after taxes, equal to
$0.12 per diluted share. This charge consisted of lease payments of
approximately $10.2 million representing amounts due from the move date through
April 2003, the lease termination date, on the Company's vacated offices in New
York and the accelerated depreciation of leasehold improvements and certain
furniture and fixtures and equipment of approximately $2.1 million based on
revised estimates of useful lives. The Company expects to incur additional
pre-tax charges of approximately $2.5 million in the first quarter of 2003,
primarily duplicate rent through the move date and moving costs. The relocation
will provide a more collaborative and efficient work environment, relieve
overcrowding in the current facility, and will meet the Company's growth needs.
Proforma results of operations for fiscal 2002 excluding the unusual charge
were as follows:
(in millions, except per share amounts) 2002 2001
- ------------------------------------------------------------------
Operating income as reported $ 87.8 95.4
Unusual relocation charge 12.3 -
--------- ---------
Operating income before unusual charge $100.1 95.4
========= =========
Net income as reported $57.3 58.9
Unusual relocation charge, net of taxes 7.7 -
--------- ---------
Net income before unusual charge $65.0 58.9
========= =========
Income per diluted share as reported $ .91 .93
Unusual relocation charge, net of taxes .12 -
--------- ---------
Income per diluted share before unusual
charge $1.03 .93
========= =========
Revenues increased 20% to $734.4 million from $613.8 million in fiscal 2001.
Excluding Hungry Minds' contribution, revenues increased 5% despite the market
disruption following the tragic events of September 11th.
All of the Company's U.S.-based businesses contributed to the revenue growth.
European segment revenues increased, driven primarily by STM journals and higher
education programs. Wiley Canada and Australia enjoyed gains, while the
Company's business in Asia was adversely affected by the weak economy.
Before the unusual charge, fiscal 2002 operating income advanced 5% to $100.1
million. Operating margin before the unusual charge declined to 13.6% in fiscal
2002 from 15.5% in fiscal 2001, reflecting the combined effect of the $5 million
write-off of two small investments, the Hungry Minds acquisition and the
addition of several society journals, which typically have lower margins than
other journals. Excluding the investment write-offs and the unusual charge, the
operating margin was 14.3% and the operating margin before amortization of
intangibles (EBITA) was 16.7% in fiscal 2002.
Excluding the unusual charge, fiscal 2002 net income of $65.0 million and income
per diluted share of $1.03 advanced 10% and 11%, respectively, over fiscal 2001.
Including the unusual charge, fiscal 2002 net income was $57.3 million, or $0.91
per diluted share.
In the fourth quarter of fiscal 2002, based on current market conditions and an
assessment of estimated realizable values, the Company wrote-off two small
investments in an environmental remediation portal and database and an
informatics company. The resulting charge was $5 million, or $2.9 million after
taxes, equal to $0.05 per diluted share.
Cost of sales as a percentage of revenues increased to 33.1% in fiscal 2002 from
32.5% in fiscal 2001 due primarily to the inclusion of Hungry Minds, which has
lower gross margins than the Company's other businesses due to lower price
points.
Operating and administrative expenses as a percentage of revenues was 50.9% in
fiscal 2002, compared with 49.1% in fiscal 2001. The increase was primarily due
to the write-off of the investments mentioned above, as well as increased
spending on new business initiatives. Operating expenses increased 24% over
fiscal 2001, primarily due to the inclusion of Hungry Minds and the
aforementioned investment write-offs. Excluding Hungry Minds and the investment
write-offs, operating expenses increased approximately 9%.
Interest expense net of interest income was $6.6 million in fiscal 2002 versus
$5.2 million in fiscal 2001, reflecting the impact of higher average debt levels
due to the acquisitions, partially offset by lower average rates during the
year.
The Company's effective tax rate was 29.3% in fiscal 2002, compared with 34.7%
in the prior year. The decrease was primarily due to lower foreign taxes
attributable to lower foreign tax rates, acquisition related items, and
resolution of certain open tax issues.
During fiscal 2002, the Company repurchased 96,500 Class A Common shares at an
average price of $19.49 per share for a total cost of $1.9 million. Through
April 30, 2002, the Company repurchased 2,751,850 Class A Common shares at an
average price of $16.80 per share for a total cost of $46.2 million under the
Company's current stock repurchase program.
Fiscal 2002 Segment Results
Professional/Trade: Domestic Professional/Trade reported a 56% increase in
revenues in fiscal 2002 to $253.1 million. Excluding Hungry Minds, revenues
advanced 3%. Direct contribution to profit improved 75% to $62.1 million in
fiscal 2002 versus $35.6 million in fiscal 2001, primarily due to the
acquisition of Hungry Minds. The direct contribution margin was 24.6% of
revenues compared with 21.9% of revenues in fiscal 2001. The margin improvement
was attributable to the synergies realized through the integration of Hungry
Minds.
During the year, the Professional/Trade segment experienced the negative effects
of the slowdown in retail and corporate sales following the September 11th
terrorist attacks and general economic conditions. Business and travel books
were most affected. The culinary, architecture, psychology, and general interest
areas continued to perform well. The pace of sales improved significantly in the
last four months of the fiscal year. The rebound was powered by two bestsellers
- - Christopher Byron's Martha, Inc. and Martin Weiss' Ultimate Safe Money Guide.
Other revenue drivers were a strong tax publication season, and the launch of
several titles from the Company's publishing alliances and franchises such as
BusinessThink by David Marcum and Steve Smith (the Franklin Covey Institute);
The Professional Chef, seventh edition (the Culinary Institute of America); the
Architect's Handbook of Professional Practice, 13th edition (the American
Institute of Architects); and Brought to You in Living Color: 75 Years of Great
Moments in Television & Radio from NBC by Marc Robinson.
The acquisition of Hungry Minds nearly doubled the annualized revenues of the
domestic Professional/Trade segment through the addition of new products and
capabilities. The acquisition included 2,500 active titles which are available
in 39 languages. Well-known brands include the For Dummies and Unofficial Guide
series, the technological Bible and Visual series, Frommer's travel guides,
CliffsNotes, Webster's New World Dictionary, Betty Crocker, and Weight Watchers.
In the highly competitive publishing industry, brand recognition is important
with both intermediaries and ultimate purchasers. The acquisition accelerated
revenue and earnings growth by enhancing the Company's already strong presence
in the segment and leveraging its worldwide distribution channels. In a notable
success, Windows XP For Dummies, became the industry's top-selling computer
title.
Other acquisitions included Frank. J. Fabozzi Publishing, a publisher of
high-quality finance books for the professional market.
Shortly after the close of fiscal year, the Company acquired a list of
approximately 250 titles from Prentice Hall Direct, a unit of Pearson Education,
for approximately $6.5 million. This acquisition brings 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.
The Internet is playing a growing role in the Company's business. The Company's
highly respected brands and extensive backlist are especially suited for online
bookstores. With their unlimited "virtual" shelf space, online retailers
merchandise the Company's products for longer periods of time than
brick-and-mortar bookstores.
Demand for Web-based electronic products has emerged in professional markets
with the advent of broadband Internet access. In fiscal 2002, the Company
launched online products such as TheraForms downloadable forms from Wiley's
practice management books. Additional Web-based products will be introduced in
fiscal 2003.
STM: Domestic STM revenues increased 6% in fiscal 2002 to $164.9 million,
reflecting strong journal subscription renewal rates, the growth of Wiley
InterScience online services, the addition of three society journals, and new
products. Direct contribution to profit declined 5% to $67.7, attributable to
the previously mentioned write-off of two small investments. Excluding the
write-off, the direct contribution increased 2% and the direct contribution
margin was 44.1% of revenues compared with 45.8% of revenues in fiscal 2001,
reflecting the continued investment in sales, marketing and service enhancements
for Wiley InterScience, as well as the addition of new society journals, which
typically have lower margins than other journals.
The Company's STM business is migrating rapidly to the Internet through the
profitable Wiley InterScience service, established commercially in 1999. Wiley
InterScience is based on a successful business model that features Enhanced
Access Licenses. One to three years in duration, these licenses provide
customers with multi-site online access to journals and other STM products. The
value of licenses signed by academic institutions, companies, and consortia
approximately doubled in fiscal 2002. Wiley InterScience is now licensed by
customers in 87 countries, delivering must-have content to almost six million
scientists, researchers, academics, and professionals around the world. Growth
is being driven by the global research community's demand for quality content,
readily accessible and fully searchable.
The Company continues to add a rich content offering and greater functionality
to Wiley InterScience to meet customer needs and increase the revenue base. The
service now provides online access to virtually all of the Company's over 350
journals and to more than 30 reference works, as well as to approximately 250
STM books through OnlineBooks, a new feature. In fiscal 2002, Wiley expanded its
MobileEdition service to 20 journals including the launch of TNM MobileEdition,
the first portable electronic version of the TNM classification system, which
Wiley publishes in print. MobileEditions are designed for use on Personal
Digital Assistants and other wireless devices. Also new were ContentAlerts and
Roaming Access, which enable researchers to access the scientific literature
they need, as soon as it is available, wherever and whenever they want. Rapid
growth in customer use is being fueled as well by linking agreements with
third-party providers. These linkages enhance functionality by enabling a
researcher to click on a reference citation and immediately access the cited
publication, even at another publisher. Additional linking agreements were
established in fiscal 2002 with EBSCO Online, PubMed, Celera Genomics, and
Chemical Abstract Services. Wiley's journals are now linked to more than 130
other publishers' journals.
Continuing the expansion of its worldwide peer-reviewed journals program, in
fiscal 2002 the Company acquired publishing rights to three additional society
journals in the United States These titles add revenues, profits, cash flow, and
prestige to Wiley. In addition, the Company signed a 10-year extension of its
publishing agreement for the Journal of Research in Science Teaching, the
official journal of the National Association for Research in Science Teaching.
The Company's worldwide journal business increased as a result of anti-piracy
initiatives and the Chinese government's decision to close the largest supplier
of pirated journals.
Higher Education: Domestic Higher Education revenues increased 6% to $141.3
million in fiscal 2002, partly attributable to the acquisition of higher
education titles during the year. Direct contribution to profit increased 6% to
$44.3 million, and the direct contribution margin of 31.3% of revenues was
essentially the same as the prior year. Although college enrollments in
engineering, a key Wiley area, were flat, the Company's business, psychology and
geography programs performed well.
A core strategy is to build the business through a combination of organic growth
and acquisitions. The Company rolled out a strong frontlist in fiscal 2002,
publishing 134 packages. In November 2001, the Company acquired 47 titles from
Thomson Learning in business, earth and biological sciences, foreign languages,
mathematics, nutrition, and psychology. The Company has created value by
leveraging its existing infrastructure and by strengthening author
relationships, resulting in new contracts for additional educational packages.
Higher education demographics remain favorable overall, with more students
attending college and enrolling in lifelong learning courses than ever before.
In addition, the soft economy has resulted in increased student applications to
graduate programs. The Company has introduced new, value-added materials and
services to combat used book sales, which is a continuing industry-wide problem.
Initial student orders were received for the Web Access License, a fee-based
service that provides access to online supplements for students.
The Company continues to develop new formats to create more value for teachers
and students. "Active Learning Editions" with brief texts and integrated study
tools were introduced in fiscal 2002 as a lower-priced alternative to
traditional textbooks.
With approximately 1,700 Web sites that support its texts, in addition to many
Web-based free and for-sale supplements, Higher Education has launched a number
of products that integrate technology and print to provide students and
instructors with tools to improve outcomes or meet specific objectives. An
example is eGrade, Web-based software that allows students to do independent,
self-paced practice homework with immediate scoring and individualized feedback.
The Company also introduced Calculus Machina, a step-by-step, Web-based calculus
tutorial that will be customized to additional subjects. During fiscal year
2002, the Company published the first Interactive Homework Editions a new
product that integrates end-of-chapter problem solving with an online
interactive e-book. The IHE program was successfully pilot-tested at Penn State.
Europe: European fiscal 2002 revenues of $164.1 million advanced 6% over fiscal
2001. Direct contribution to profit was $54.6 million, up 9%. The direct
contribution margin was 33.3% of revenues in fiscal 2002 and 32.3% of revenues
in fiscal 2001. The STM journals business was strong in fiscal 2002, with
improved subscription renewals and growing electronic access. Higher education
programs also were a key revenue driver.
Acquisitions at the end of fiscal 2002 included A&M Publishing Ltd., a U.K.
based publisher for the pharmaceutical and healthcare sectors, and GIT Verlag
GmbH, a German publisher for the chemical, pharmaceutical, biotechnology,
security, and engineering industries.
Wiley-VCH in Germany introduced nearly a dozen new journals, including Advanced
Synthesis & Catalysis, Macromolecular Bioscience, and PROTEOMICS.
Wiley U.K. launched ExpressExec encompassing approximately 100 management books
available in electronic and print formats. Wiley-VCH launched pro-physics.de, a
community-of-interest Website. As part of its alliance strategy, the Company
concluded an agreement with Symbian Ltd., a joint venture between Nokia,
Ericsson, Motorola, and NTT, to publish a range of titles about applications and
programming for the Symbian operating system.
In both the U.K. and Germany, the Company will be moving to new offices that
provide a more collaborative and productive work environment.
Other Segments: Revenues advanced 6% in fiscal 2002 to $68.3 million, reflecting
a solid performance in Canada and Australia, including Hungry Minds'
international sales, offset to a large degree by weak economic conditions in
Asia. Direct contribution to profit was $15.2 million, up 3%. The direct
contribution margin was 22.2% of revenues in fiscal 2002 and 22.9% of revenues
in fiscal 2001.
Wiley Australia achieved solid growth in its higher education business and won
the bookseller's Tertiary Publisher of the Year award for outstanding service to
the higher education market for the fourth consecutive year. Professional/trade
publishing was expanded with the acquisition of Wrightbooks, Pty, Ltd., a
publisher of high quality finance books for the professional market, which
exceeded expectations.
Wiley Canada solidified its leadership in accounting through a targeted effort
to increase sales of higher education titles such as Kimmel, Weygandt, Kieso,
and Trenholm: Financial Accounting: Tools for Business Decision-Making, Canadian
edition. Its trade program was bolstered by Hungry Minds, which has a strong
market presence with titles such as Taxes For Canadians For Dummies and
Frommer's with Kids travel guides to major Canadian cities. In Asia, a weak
economy adversely affected results. However, strong growth continued in China,
as the Company's foreign rights and co-publishing business benefited form the
opening of China's educational market.
Results of Operations
Fiscal 2001 Compared to Fiscal 2000
Net income increased 12% to $58.9 million in fiscal 2001, while earnings per
diluted share advanced 15% to $0.93 per share. The Company continued to expand
its alliances and invest in new technologies to create additional avenues to
distribute its "must-have" content. Results also benefited from continued
productivity improvements and prudent expense management. Results were strong in
the first half of the fiscal year. However, the second half was marked by
industry-wide sluggish sales in the domestic Higher Education and
Professional/Trade segments.
Revenues were adversely affected by a strong U.S. dollar. Revenues of $613.8
million for the year advanced 4% in real terms, excluding foreign currency
translation effects, or 1% including those effects. Revenue gains were led by
the global STM business attributable to solid performances in the journal
programs, online services, and a revitalized book program in Europe. In
addition, the Company's operations in Asia and Australia reported strong
results.
Cost of sales as a percentage of revenues was 32.5% in fiscal 2001, down from
33.0% in the prior year, reflecting lower relative composition and production
costs as a result of technology-driven productivity initiatives.
Operating and administrative costs were essentially flat with the prior year,
but increased 3% excluding foreign exchange translation effects. Expenses as a
percentage of revenues were 49.1%, compared with 49.6% in the prior year. The
decrease was attributable to lower expenses in fiscal 2001 related to a small
STM newsletter program that was divested during the year.
Operating income increased 7% over the prior year and the operating margin
improved to 15.5% from 14.7% in the prior year due to productivity gains and
gross margin improvements.
Interest expense net of interest income of $5.2 million declined compared with
the prior year due to increased cash investments.
The effective tax rate declined to 34.7% from 36.6% in the prior year,
attributable to lower relative state income taxes resulting from the settlement
of open tax issues.
During the year, the Company repurchased approximately 359,000 shares at an
average price of $19.19 per share for a total cost of $6.9 million.
Fiscal 2001 Segment Results
Professional/Trade: Domestic Professional/Trade revenues of $162.1 million were
essentially flat for the year, reflecting the effect of industry-wide softness
at some key retail accounts, as well as tight inventory management practices
adopted by major wholesalers. Sales through online accounts continued to grow
around the world. Direct contribution to profit of $33.5 million was 11% below
the prior year, as expenses increased 5%. The Professional/Trade business
continued to take advantage of the growth of e-commerce. Demand increased for
electronic products among the professional markets that the Company serves,
notably computing, accounting, finance, psychology, and architecture.
Professional/Trade capitalized on these opportunities with a combination of
print and Web-based products and services, as well as through the formation of
strategic alliances. Electronic licensing agreements included
Professional/Trade's leadership and management titles to Books24X7 for their new
Business Pro subscription database; the J.K. Lasser tax guide to
CPAdirectory.com, a Web portal, for use in a syndicated database and the
licensing of content to Digital Cement, a B2B service that provides content
packages to corporate clients.
BoldIdeas, an online collection of 40 business and environmental management
periodicals was launched in fiscal 2001on the Wiley InterScience platform.
In fiscal 2001, The Power of Gold, The Ernst & Young Tax Guide 2001, and J.K.
Lasser's Income Tax Guide 2001 appeared on best seller lists such as The Wall
Street Journal, The New York Times, and Business Week.
STM: Domestic STM revenues of $156.1 million increased 4% over fiscal 2000, led
by a strong journal program, offset to some degree by the divestment of a small
newsletter program. Journal growth resulted from higher renewal rates, increased
sales of Enhanced Access Licenses for Wiley InterScience, and the addition of
society journals. Direct contribution to profit increased 12% to $71.5 million.
Margins continued to improve as a result of lower composition and production
costs as a percentage of revenues, as well as lower expenses in fiscal 2001
related to the divested newsletter program. During the year, Wiley InterScience
enhanced its online product offerings to include major reference works such as
multi-volume encyclopedias, databases, and Current Protocols, the widely used
laboratory manual series. Other system enhancements included: ArticleSelect,
providing individual article access; EarlyView, allowing customers to access
individual articles online well in advance of the print issue; MobileEdition,
providing table of contents and abstracts directly to personal and wireless
handheld devices and Web-enabled phones; and an alliance with Maruzen
KnowledgeWorker, providing a Japanese interface to enable searching and browsing
in that language.
The Company signed a multi-year agreement with IEEE, the premier society for
electrical, electronics, and computer engineers with more than 360,000 members
in 150 countries, whereby the Company and IEEE will publish a co-branded series
of books.
Higher Education: Domestic Higher Education revenues advanced 3% over the prior
year. Growth was inhibited by disruption resulting from the bankruptcy of a
major account, as well as a shift away from the higher education market by some
online accounts. Direct contribution to profit increased 11% to $41.9 million,
and the direct contribution margin improved to 31.5% of revenues compared with
29.1% of revenues in fiscal 2000, as a result of prudent expense management.
Demographic trends in the higher education market remained healthy with
enrollments increasing steadily and online and lifelong learning markets
growing. The Higher Education segment continued to invest in technology to help
teachers teach and students learn. Every major college textbook now has a
technology component and/or Website designed to facilitate teaching and
learning. Alliances were formed to provide many of the Company's top-selling
textbooks in the eBook format. The Company worked with course management
providers to offer interactive syllabi, chat rooms, and assessment tools
including online quizzing and testing. The Company will also package XanEdu's
MBA ReSearch Engine with the print editions of some of Higher Education's
leading textbooks.
Europe: European segment revenues of $155.3 million for the year were adversely
affected by the strong U.S. dollar. Excluding foreign currency translation
effects, European revenues advanced 7% over fiscal 2000. Direct contribution to
profit of $50.1 million increased 5% over fiscal 2000, and the direct
contribution margin increased to 32.3% of revenues compared with 31.1% of
revenues in fiscal 2000. Performance was driven by a revitalized STM book
program, higher journal revenues, and an expanding professional/trade book
program. During the year, the European segment continued to expand its
publishing programs by acquiring a majority stake in the Oxford-based business
publisher Capstone Publishing, Ltd. Capstone, with annual revenues of
approximately $2 million, publishes a broad array of professional business and
management titles. New journal launches, in conjunction with European chemistry
societies, included ChemPhysChem, ChemBioChem, and Chemistry - A European
Journal.
Other Segments: Revenues of $64.3 million advanced 8% over fiscal 2000,
excluding the adverse foreign currency translation effects related to the strong
U.S. dollar. The improvement in the other segments results was mainly due to
market share gains in Asia and a strong school program in Australia, offset to
some degree by industry-wide sales shortfalls at a key Canadian account.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance was $39.7 million at the end of
fiscal 2002, compared with $52.9 million a year earlier. Cash provided by
operating activities of $140.4 million improved by $9.4 million over the prior
year, and was driven primarily by increased cash earnings partially offset by
the payment of acquisition related liabilities and an increase in taxes
receivable. Cash used for investing activities of $314.1 million increased
$242.2 million over the prior year, representing the higher level of
acquisitions consummated during the year, including Hungry Minds. Cash provided
by financing activities reflected a net increase of $207.2 million over the
prior year primarily related to the increase debt needed to finance the
acquisitions.
The Company's operating cash flow is affected by the seasonality of its domestic
higher education business and receipts from its journal subscriptions. Receipts
from journal subscriptions occur primarily during November and December from
companies commonly referred to as independent subscription agents. Reference is
made to the Credit Risk section which follows for a description of the impact on
the Company as it relates to journal agents' financial position and liquidity.
Sales in the domestic higher education market tend to be concentrated in June
through August, and again in November through January. The Company normally
requires increased funds for working capital from May through September. Subject
to variations that may be caused by fluctuations in inventory levels or in
patterns of customer payments, the Company's normal operating cash flow is not
expected to vary materially in the near term.
Although the statement of financial condition indicates a negative working
capital of $45.1 million at April 30, 2002, current liabilities include $125.8
million of deferred subscription revenues related to journals for which the cash
has been received and will be recognized into income as the journals are shipped
or made available online to the customer, or over the term of the subscription
as services are rendered. Excluding this deferred income item, working capital
at April 30, 2002 was a positive $80.7 million.
To finance the Hungry Minds acquisition and provide financial flexibility, the
Company obtained an additional $300 million bank credit facility with 13 banks,
consisting of a $200 million five-year term loan facility to be repaid in
September 2006, and a $100 million five-year revolving credit facility expiring
in September 2006.
To finance its short-term seasonal working capital requirements, including the
$30 million scheduled debt repayment, and its growth opportunities, the Company
has adequate cash and cash equivalents available, as well as both domestic and
foreign short-term lines of credit, amounting to $180 million as more fully
described in the note to the consolidated financial statements entitled "Notes
Payable and Debt." The Company does not have any off-balance-sheet debt.
The capital expenditures of the Company consist primarily of investments in
product development and property and equipment. Capital expenditures for fiscal
2003 are projected to be approximately $131 million, an increase of
approximately $50 million over fiscal 2002, of which approximately $45 million
pertains to facilities and leasehold improvements related to the relocation of
certain operations in the U.S. and Europe and the remainder representing
increased investments in product development, including electronic media
products, and computer equipment upgrades and software in support of the higher
volume of business to ensure efficient customer service. These investments will
be funded primarily from internal cash generation, the liquidation of cash
equivalents, and the use of short-term lines of credit.
A summary of contractual obligations and commercial commitments is as follows.
Dollars in Millions Payments Due by Period
- ---------------------------------------------------------------------
Contractual Total Less 1-3 4-5 After
than 1 5
Obligation year years years years
- -------------------- ---------- -------- -------- -------- -------
Total Debt $265.0 30.0 35.0 200.0 -
Operating Lease
Obligations 271.0 34.5 44.4 42.5 149.6
Building
Construction
Obligations 13.3 13.3 - - -
---------- -------- -------- -------- -------
Total Contractual
Cash Obligations $549.3 77.8 79.4 242.5 149.6
---------- -------- -------- -------- -------
Market Risk
The Company is exposed to market risk primarily related to interest rates,
foreign exchange, and credit risk. It is the Company's policy to monitor these
exposures and to use derivative financial investments and/or insurance contracts
from time to time to reduce fluctuations in earnings and cash flows when it is
deemed appropriate to do so. The Company does not use derivative financial
instruments for trading or speculative purposes.
Interest Rates
The Company had $265 million of variable rate loans outstanding at April 30,
2002, which approximated fair value. The Company did not use any derivative
financial investments to manage this exposure. A hypothetical 1% change in
interest rates for this variable rate debt would affect net income and cash flow
by approximately $1.6 million.
Foreign Exchange Rates
The Company is exposed to foreign exchange movements primarily in sterling,
euros, and Asian, Canadian, and Australian currencies. Consequently, the
Company, from time to time, enters into foreign exchange forward contracts as a
hedge against foreign currency asset, liability, commitment, and anticipated
transaction exposures, including intercompany purchases. At April 30, 2002, the
Company had open foreign exchange forward contracts, expiring through January
2003 relating to hedges of foreign currency exposures as follows:
In thousands
--------------
Currency Purchased U.S. $ Value Average Contract Rate
- ------------------ ------------ ---------------------
Euro 93 .9320
UK Pound Sterling 11,844 1.4992
A hypothetical 10% change in exchange rates would have the effect of
approximately $0.7 million.
Credit Risk
The Company's business is not dependent upon a single customer; however, the
industry has experienced a significant concentration in national, regional, and
online bookstore chains in recent years. Although no one book customer accounts
for more than 8% of total consolidated revenues, the top ten book customers
account for approximately 31% of total consolidated revenues and approximately
48% of total gross trade accounts receivable at April 30, 2002. To mitigate its
credit risk exposure, the Company obtains credit insurance where available and
economically justifiable. In the journal publishing business, subscriptions are
primarily sourced through independent subscription agents who, acting as agents
for library customers, facilitate ordering by consolidating the subscription
orders/billings of each subscriber with various publishers. Monies are generally
collected in advance from subscribers by the subscription agents and are
remitted to the journal publisher, including the Company, generally prior to the
commencement of the subscriptions. Although at fiscal year-end the Company had
minimal credit risk exposure to these agents, future calendar-year subscription
receipts from these agents are highly dependent on their financial condition and
liquidity. Subscription agents account for approximately 25% of total
consolidated revenues and no one agent accounts for more than 7% of total
consolidated revenues. Insurance for these accounts is not commercially feasible
and/or available.
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 has implemented a number of initiatives, including various steps to
reduce production and manufacturing costs. In addition, selling prices have been
selectively increased as competitive conditions have permitted. The Company
anticipates that it will be able to continue this approach in the future.
Critical Accounting Policies
The preparation of the Company's financial statements in conformity with
accounting principals generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Management continually evaluates the basis for its
estimates; however, actual results could differ from those estimates which could
affect the reported results from operations. Set forth below is a discussion of
the Company's more critical accounting policies and the basis for estimates
used.
Revenue Recognition
Revenue is recognized when products have been shipped or when services have been
rendered and when the following additional criteria have been met: persuasive
evidence that an arrangement or contract exists; the price to the customer is
fixed or determinable; and collectibility is reasonably assured. Collectibility
is evaluated based on the amount involved, the credit history of the customer,
and the current status of the customer's account with the Company.
Allowance for Doubtful Accounts
The estimated allowance for doubtful accounts is based on a review of the aging
of the accounts receivable balances, the historical write-off experience, the
credit standing of the customer and the amount of credit insurance coverage. A
change in the credit standing of customers and/or the amount of credit insurance
available could affect the estimated allowance.
Allowance for Sales Returns
The estimated allowance for sales returns is based on a review of the historical
return patterns associated with the various sales outlets, as well as current
market trends in the businesses in which we operate. A change in the pattern or
trends in returns could affect the estimated allowance.
Reserve for Inventory Obsolescence
Inventories are carried at cost or market, whichever is lower. A reserve for
inventory obsolescence is estimated based on a review of damaged, obsolete or
otherwise unsaleable inventory. The review encompasses historical unit sales
trends by title, current market conditions, including estimates of customer
demand, and publication revision cycles. A change in sales trends could affect
the estimated reserve.
Allocation of Acquisition Purchase Price
to Assets Acquired and Liabilities Assumed
In connection with acquisitions, the Company allocates the cost of the
acquisition to the assets acquired and the liabilities assumed based on
estimates of the fair value of such items including goodwill, other intangible
assets with indefinite lives, and other intangible assets and the related useful
lives. Such estimates include expected cash flows to be generated by those
assets and the expected useful lives based on historical experience, current
market trends as well as synergies to be achieved from the acquisition. For
major acquisitions, the Company uses independent appraisers to confirm the
reasonableness of such estimates. A change in the useful lives of intangible
assets other than goodwill could affect the Company's amortization expense for
the year.
Impairment of Intangible and Other Long-Lived Assets
Management periodically evaluates the recoverability of intangibles, including
goodwill, and other long-lived assets in connection with its annual financial
process review, or whenever facts and circumstances indicate the carrying value
of those assets may not be recoverable. Evaluations include estimates of future
cash flows generated by the underlying assets, current trends and other
determinants of fair value. If the carrying value of the asset exceeds the
estimated fair value, an impairment loss is recognized for the difference. It is
possible that the estimates of the fair value may not be realized due to future
changes in market conditions and other factors, in which case a further
impairment loss would have to be recognized.
Recent Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for by a single
method - the purchase method. In addition, the statement requires the purchase
price to be allocated to identifiable intangible assets in addition to goodwill
if certain criteria are met. The statement also requires additional disclosures
related to the reasons for the business combination, the allocation of the
purchase price, and if significant by reportable segment, to the assets acquired
and liabilities assumed.
SFAS No. 142 eliminates the requirement to amortize goodwill and those
intangible assets that have indefinite useful lives, but requires an annual test
for impairment at the reporting unit level. Intangible assets that have finite
useful lives will continue to be amortized over their useful lives. SFAS No. 142
will be effective in fiscal 2003 for goodwill and other intangible assets
acquired prior to July 1, 2001, and is effective immediately for acquisitions
occurring after June 30, 2001. The Company is in the process of evaluating and
reassessing its goodwill and other intangible assets to determine the impact of
any impairment and the related useful lives and the corresponding amortization
expense to be recorded. The Company anticipates that approximately $10 million
of fiscal year 2002 amortization, equal to $0.12 per diluted share, related to
goodwill and other intangibles with indefinite lives will be eliminated as a
charge to earnings in the future, absent any other changes.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This standard addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard is effective for fiscal 2004. The adoption of SFAS No. 143
is not expected to have a material impact on the Company's financial results.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." This standard
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The standard is effective for fiscal 2004. The adoption of
SFAS No. 144 is not expected to have a material impact on the Company's
financial results.
"Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements concerning the Company's
operations, performance, and financial condition. Reliance should not be placed
on forward-looking statements, as actual results may differ materially from
those in any forward-looking statements. Any such forward-looking statements are
based upon a number of assumptions and estimates that are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, and are subject to change based on many important factors. Such factors
include, but are not limited to (i) the level of investment in new technologies
and products; (ii) subscriber renewal rates for the Company's journals; (iii)
the financial stability and liquidity of journal subscription agents; (iv) the
consolidation of book wholesalers and retail accounts; (v) the market position
and financial stability of key online retailers; (vi) the seasonal nature of the
Company's educational business and the impact of the used book market; (vii)
worldwide economic and political conditions; and (viii) 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.
Results by Quarter (Unaudited)
John Wiley & Sons, Inc. and Subsidiaries
Dollars in thousands except per share data
2002 2001
- ------------------- ------------------- -----------------------
Revenues
First quarter $ 161,044 $ 153,928
Second quarter 176,201 160,561
Third quarter 207,981 163,798
Fourth quarter 189,170 135,503
- ------------------- ------------------- -----------------------
Fiscal year $ 734,396 $ 613,790
- ------------------- ------------------- -----------------------
Operating Income
First quarter $ 30,537 $ 27,943
Second quarter 28,913 28,305
Third quarter 34,716 28,696
Fourth quarter (6,403) (a) 10,480
- ------------------- ------------------- -----------------------
Fiscal year $ 87,763 (a) $ 95,424
- ------------------- ------------------- -----------------------
Net Income
First quarter $ 19,541 $ 16,474
Second quarter 17,914 16,945
Third quarter 21,352 17,281
Fourth quarter (1,491) (a) 8,218
- ------------------- ------------------- -----------------------
Fiscal year $ 57,316 (a) $ 58,918
- ------------------- ------------------- -----------------------
Income Per Share Diluted Basic Diluted Basic
--------- ----------- --------- -----------
First quarter $.31 $.32 $.26 $.27
Second quarter .28 .29 .27 .28
Third quarter .34 .35 .27 .28
Fourth quarter (.02)(a) (.02)(a) .13 .14
Fiscal year .91 (a) .94 (a) .93 .97
- ------------------- --------- ----------- --------- -----------
(a) Fiscal 2002 includes an unusual charge to earnings amounting to
approximately $12,312, or $7,683 after tax, equal to $0.12 per diluted share
($0.13 per basic share) relating to the relocation of the Company's headquarters
and includes lease payments on the vacated premises and the accelerated
depreciation of leasehold improvements and certain furniture and fixtures and
equipment based on revised estimates of useful lives.
Quarterly Share Prices, Dividends, and Related Stockholder Matters
The Company's Class A and Class B shares are listed on the New York Stock
Exchange under the symbols JWa and JWb, respectively. Dividends per share and
the market price range by fiscal quarter for the past two fiscal years were as
follows:
Class A Common Stock Class B Common Stock
---------------------- ----------------------
Divi- Market Price Divi- Market Price
dends High Low dends High Low
---------------- ------ ------- ------- ------- ------ -------
2002
First quarter $.05 $23.68 $18.95 $.05 $23.65 $19.00
Second quarter .05 22.59 19.54 .05 22.60 19.45
Third quarter .05 24.10 20.00 .05 23.90 19.95
Fourth quarter .05 27.46 22.26 .05 27.45 22.40
---------------- ------ ------- ------- ------- ------ -------
2001
First quarter $.04 $25.69 $17.56 $.04 $25.50 $17.44
Second quarter .04 23.25 19.88 .04 23.21 19.88
Third quarter .04 22.50 18.75 .04 22.00 19.00
Fourth quarter .04 21.47 18.15 .04 21.45 18.25
As of April 30, 2002, the approximate number of holders of the Company's Class A
and Class B Common Stock were 1,220 and 164, respectively, based on the holders
of record and other information available to the Company.
The Company's credit agreement contains certain restrictive covenants related to
the payment of dividends and share repurchases. Under the most restrictive
covenant, approximately $122 million was available for such restricted payments.
Subject to the foregoing, the Board of Directors considers quarterly the payment
of cash dividends based upon its review of earnings, the financial position of
the Company, and other relevant factors.
Selected Financial Data
John Wiley & Sons, Inc. and Subsidiaries
Dollars in thousands except per share data For the years ended April 30
----------------------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------- --------------- -------------- --------------- --------------- --------------
Revenues $734,396 $613,790 $606,024 $519,164 $478,075
Operating Income 87,763(a) 95,424 89,004 63,654 40,864
Gain on Sale of Publishing Assets -- -- -- -- 21,292
Net Income 57,316 (a) 58,918 52,388 39,709 36,588(b)
Working Capital (57,316)(a) (57,226)(c) (76,939)(c) 60,870 59,257
Total Assets 896,145 588,002 569,337 528,552 506,914
Long-Term Debt 235,000 65,000 95,000 125,000 125,000
Shareholders' Equity 276,650 220,023 172,738 162,212 160,751
- --------------------------------------------------- --------------- -------------- --------------- --------------- --------------
Per Share Data
Income Per Share
Diluted .91 (a) .93 .81 .60 .55(b)
Basic .94 (a) .97 .85 .63 .58(b)
Cash Dividends
Class A Common .18 .16 .14 .13 .11
Class B Common .18 .16 .13 .11 .10
Book Value-End of Year 4.48 3.62 2.85 2.60 2.51
- --------------------------------------
(a) Fiscal 2002 includes an unusual charge to earnings amounting to
approximately $12,312, or $7,683 after tax, equal to $0.12 per diluted
share ($0.13 per basic share) relating to the relocation of the Company's
headquarters, and includes lease payments on the vacated premises and the
accelerated depreciation of leasehold improvements and certain furniture
and fixtures and equipment based on revised estimates of useful lives.
(b) Fiscal 1998 includes unusual items amounting to $9,713 after tax, equal to
$0.14 per diluted share ($0.15 per basic share) relating to the gain on the
sale of the domestic law publishing program, net of a write-down of certain
intangible assets and other items. Excluding the unusual items, net income
would have been $26,875, or $0.41 per diluted share and $0.43 per basic
share.
(c) Working capital is negative as a result of including in current liabilities
the deferred subscription revenues related to journal subscriptions for
which the cash has been received and which will be recognized into income
as the journals are shipped or made available online to the customer, or
over the term of the subscription as services are rendered.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders
of John Wiley & Sons, Inc.:
We have audited the accompanying consolidated statement of financial position of
John Wiley & Sons, Inc. and subsidiaries as of April 30, 2002, and the related
consolidated statements of income and retained earnings, comprehensive income,
and cash flows for the year then ended. In connection with our audit of the
consolidated financial statements, we also have audited the financial statement
schedule (as listed in the accompanying index). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of John Wiley & Sons,
Inc. and subsidiaries as of April 30, 2002, and the results of their operations
and their cash flows for the year ended April 30, 2002, in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
New York, New York
June 5, 2002
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and the Shareholders
of John Wiley & Sons, Inc.:
We consent to the incorporation by reference in the Registration Statement Nos.
333-93691, 33-60268, 2-65296, 2-95104, 33-29372 and 33-62605 of John Wiley &
Sons, Inc. of our report dated June 5, 2002, with respect to the consolidated
statement of financial position of John Wiley & Sons, Inc. as of April 30, 2002,
and the related consolidated statements of income and retained earnings,
comprehensive income, and cash flows for the year ended April 30, 2002, and the
related financial statement schedule, which report appears in the April 30, 2002
annual report on Form 10-K of John Wiley & Sons, Inc.
KPMG LLP
New York, New York
July 2, 2002
The following report of Arthur Andersen LLP ("Andersen") is a copy of the
original report dated June 5, 2001, rendered on the prior years' financial
statements. The SEC has recently provided regulatory relief designed to allow
public companies to dispense with the requirement that they file a consent of
Andersen in certain circumstances. After reasonable efforts, we have not been
able to obtain a re-issued report or consent from Andersen, and, accordingly,
should you wish to pursue claims against Andersen in connection with those
financial statements, your ability to seek remedies and obtain relief against
Andersen may be impaired.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders
of John Wiley & Sons, Inc.:
We have audited the accompanying consolidated statement of financial position of
John Wiley & Sons, Inc. (a New York corporation), and subsidiaries as of April
30, 2001, and 2000, and the related consolidated statements of income and
retained earnings, comprehensive income, and cash flows for each of the three
years in the period ended April 30, 2001. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of John Wiley & Sons, Inc., and
subsidiaries as of April 30, 2001and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
2001, in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedules for the years ended April 30,
2001 and 2000 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a required part of the basic financial
statements. This schedule for the years ended April 30, 2001 and 2000 has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
June 5, 2001
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
John Wiley & Sons, Inc. and Subsidiaries April 30
Dollars in thousands 2002 2001
=======================================================================================
Assets
Current Assets
Cash and cash equivalents........................$ 39,705 $ 52,947
Accounts receivable.............................. 101,084 62,514
Taxes receivable................................. 18,664 -
Inventories...................................... 69,799 50,763
Deferred income tax benefits..................... 34,394 13,331
Prepaid expenses................................. 11,613 9,980
------- -------
Total Current Assets............................. 275,259 189,535
------- -------
Product Development Assets..................................... 63,055 41,191
Property and Equipment......................................... 72,127 52,255
Intangible Assets.............................................. 468,536 283,761
Deferred Income Tax Benefits................................... 1,351 3,380
Other Assets................................................... 15,817 17,880
------- --------
Total Assets...................................................$ 896,145 $ 588,002
======= ========
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt................$ 30,000 $ 30,000
Accounts and royalties payable................... 67,516 42,520
Deferred subscription revenues................... 125,793 117,103
Accrued income taxes............................. 9,769 9,586
Other accrued liabilities........................ 87,315 47,552
------- -------
Total Current Liabilities........................ 320,393 246,761
------- -------
Long-Term Debt................................................. 235,000 65,000
Other Long-Term Liabilities.................................... 49,827 34,901
Deferred Income Taxes.......................................... 14,275 21,317
Shareholders' Equity
Common stock issued
Class A (68,066,602 and 68,037,102 shares)....... 68,067 68,037
Class B (15,123,660 and 15,153,160 shares)....... 15,124 15,153
Additional paid-in capital....................... 26,838 18,900
Retained earnings................................ 294,032 247,731
Accumulated other comprehensive loss
Foreign currency translation adjustments.... (2,534) (3,117)
Derivative cash flow hedges................. (168) -
------- -------
Accumulated other comprehensive loss........ (2,702) (3,117)
------- -------
Unearned deferred compensation................... (1,375) (1,755)
------- -------
399,984 344,949
Less Treasury shares at cost (Class A - 18,004,770 and 18,971,
Class B - 3,484,096 and 3,484,096)............... (123,334) (124,926)
------- -------
Total Shareholders' Equity..................................... 276,650 220,023
------- -------
Total Liabilities and Shareholders' Equity ....................$ 896,145 $ 588,002
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
John Wiley & Sons, Inc. and Subsidiaries For the years ended April 30
Dollars in thousands except per share data 2002 2001 2000
==================================================================================================================================
Revenues........................................................................ $ 734,396 $ 613,790 $ 606,024
Costs and Expenses
Cost of sales.......................................................... 243,196 199,400 200,050
Operating and administrative expenses.................................. 373,463 301,470 300,523
Amortization of intangibles............................................ 17,662 17,496 16,447
Unusual item - relocation related expenses............................. 12,312 - -
---------------------------------------
Total Costs and Expenses............................................... 646,633 518,366 517,020
---------------------------------------
Operating Income................................................................ 87,763 95,424 89,004
Interest Income and Other....................................................... 835 2,828 2,017
Interest Expense................................................................ (7,480) (8,025) (8,390)
--------------------------------------
Interest Income (Expense) -Net.................................................. (6,645) (5,197) (6,373)
--------------------------------------
Income Before Taxes............................................................. 81,118 90,227 82,631
Provision for Income Taxes...................................................... 23,802 31,309 30,243
--------------------------------------
Net Income...................................................................... 57,316 58,918 52,388
--------------------------------------
Retained Earnings at Beginning of Year.......................................... 247,731 198,539 154,759
Cash Dividends
Class A Common ($.18, $.16 and $.14 per share)......................... (8,918) (7,859) (7,075)
Class B Common ($.18, $.16 and $.13 per share)......................... (2,097) (1,867) (1,533)
--------------------------------------
Total Dividends........................................................ (11,015) (9,726) (8,608)
--------------------------------------
Retained Earnings at End of Year................................................ $ 294,032 $ 247,731 $ 198,539
=====================================
Income Per Share
Diluted................................................................ $ 0.91 $ 0.93 $ 0.81
Basic.................................................................. $ 0.94 $ 0.97 $ 0.85
==================================================================================================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
John Wiley & Sons, Inc. and Subsidiaries For the years ended April 30
------------------------------------
Dollars in thousands 2002 2001 2000
=================================================================================================================================
Net Income...................................................................... $ 57,316 $ 58,918 $ 52,388
Other Comprehensive Income, net of taxes
Foreign currency translation adjustments............................... 583 525 (3,116)
Transition adjustment for derivative cash flow hedges as of May 1, 2001 (272) - -
Derivative cash flow hedges............................................ 104 - -
---------------------------------------------
Comprehensive Income............................................................ $ 57,731 $ 59,443 $ 49,272
=============================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
John Wiley & Sons, Inc. and Subsidiaries For the years ended April 30
Dollars in thousands 2002 2001 2000
Operating Activities
Net Income...................................................................... $ 57,316 $ 58,918 $ 52,388
Noncash Items
Amortization of intangibles............................................ 17,662 17,496 16,447
Amortization of composition costs...................................... 25,653 22,583 24,900
Depreciation of property and equipment................................. 16,007 13,802 11,822
Reserves for returns, doubtful accounts, and obsolescence.............. 6,675 7,527 11,211
Deferred income taxes.................................................. (3,659) 3,530 1,795
Write-off of investments............................................... 4,989 - 3,612
Unusual item - relocation related expenses............................. 12,312 - -
Other 16,523 10,185 9,063
Changes in Operating Assets and Liabilities
Decrease (increase) in accounts receivable............................. (3,998) 5,063 (21,611)
Increase in taxes receivable........................................... (9,022) - -
Increase in inventories................................................ (4,657) (9,789) (1,149)
Increase (decrease) in accounts and royalties payable.................. (1,018) (2,213) 6,134
Increase in deferred subscription revenues............................. 7,057 5,009 3,602
Increase (decrease) in other accrued liabilities....................... (169) (9,242) 12,100
Net change in other operating assets and liabilities................... 11,062 8,145 3,383
Payment of acquisition related liabilities............................. (12,367) - -
---------------------------------------
Cash Provided by Operating Activities.................................. 140,366 131,014 133,697
---------------------------------------
Investing Activities
Additions to product development assets................................ (48,039) (36,163) (33,153)
Additions to property and equipment.................................... (33,643) (28,656) (15,804)
Proceeds from sale of publishing assets................................ - 2,950 -
Acquisitions, net of cash acquired..................................... (232,393) (10,052) (145,111)
---------------------------------------
Cash Used for Investing Activities..................................... (314,075) (71,921) (194,068)
---------------------------------------
Financing Activities
Borrowings of long-term debt........................................... 200,000 - -
Repayment of long-term debt............................................ (30,000) (30,000) -
Cash dividends......................................................... (11,015) (9,726) (8,608)
Purchase of treasury shares............................................ (1,880) (6,890) (32,144)
Proceeds from issuance of stock on option exercises and other.......... 2,813 (655) (1,170)
---------------------------------------
Cash Provided by(Used for) Financing Activities........................ 159,918 (47,271) (41,922)
---------------------------------------
Effects of exchange rate changes on cash............................... 549 (1,174) (4,408)
---------------------------------------
Cash and Cash Equivalents
Increase (decrease) for year........................................... (13,242) 10,648 (106,671)
Balance at beginning of year........................................... 52,947 42,299 148,970
---------------------------------------
Balance at end of year................................................. $ 39,705 $ 52,947 $ 42,299
=======================================
Supplemental Information
Acquisitions
Fair value of assets acquired.......................................... $ 307,915 10,188 154,754
Liabilities assumed.................................................... (75,522) (136) (9,643)
---------------------------------------
Cash paid for businesses acquired...................................... $ 232,393 10,052 145,111
---------------------------------------
Cash Paid During the Year for
Interest............................................................... $ 6,879 $ 9,033 $ 8,556
Income taxes........................................................... $ 17,080 $ 19,074 $ 21,122
The accompanying notes are an integral part of the consolidated financial
statements.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of John Wiley & Sons, Inc., and its majority-owned subsidiaries.
Investments in entities in which the Company has at least a 20% but less than a
majority interest are accounted for using the equity method of accounting.
Investments in entities in which the Company has less than a 20% ownership and
in which it does not exercise significant influence are accounted for using the
cost method of accounting. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform to the current year's presentation.
Use of Estimates: The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition: In accordance with S.E.C. Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements," the Company recognizes
revenue when the following criteria are met: persuasive evidence that an
arrangement exists; delivery has occurred or services have been rendered; the
price to the customer is fixed or determinable; and collectibility is reasonably
assured. If all of the above criteria have been met, revenues are principally
recognized upon shipment of products or when services have been rendered.
Subscription revenues are generally collected in advance, and are 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.
Sales Returns and Doubtful Accounts: The Company provides an estimated allowance
for doubtful accounts and for future returns on sales made during the year based
on historical experience. The allowance for doubtful accounts and returns
(estimated returns net of inventory and royalty costs) is shown as a reduction
of accounts receivable in the accompanying consolidated balance sheets and
amounted to $84.8 and $52.8 million at April 30, 2002 and 2001, respectively.
Inventories: Inventories are stated at cost or market, whichever is lower.
Domestic book inventories aggregating $53.6 and $38.4 million at April 30, 2002
and 2001, respectively, are valued using the last-in, first-out (LIFO) method.
All other inventories are valued using the first-in, first-out method.
Product Development Assets: Product development assets consist of composition
costs and royalty advances to authors. Composition costs, primarily representing
the external costs incurred to bring an edited manuscript to publication
including typesetting, proofreading, design and illustration, etc., are
capitalized and generally amortized on a double-declining basis over estimated
useful lives, ranging from 1 to 3 years. Royalty advances to authors are
capitalized and, upon publication, are recovered as royalties are earned by the
authors based on sales of the published works.
Capitalized Internal-use Software: Costs related to obtaining or developing
computer software for internal use are accounted for as follows. Costs incurred
during the application development stage, including external costs of materials
and services, and payroll and payroll related costs for employees who are
directly associated with the internal-use software project, are capitalized and
amortized over the expected useful life of the related software. Costs incurred
during the preliminary project stage, as well as maintenance, training and
upgrades that do not result in additional functionality, are expensed as
incurred.
Depreciation and Amortization: Buildings, leasehold improvements, and capital
leases are amortized over the lesser of the estimated useful lives of the assets
up to 40 years, or the duration of the various leases, using the straight-line
method. Furniture and fixtures is depreciated principally on the straight-line
method over estimated useful lives ranging from 3 to 10 years. Computer
equipment and capitalized software are amortized on a straight-line basis over
estimated useful lives ranging from 3 to 5 years.
Intangible Assets: Intangible assets consist of goodwill, which for acquisitions
occurring prior to July 1, 2001, is amortized on a straight-line basis over
periods ranging from 5 to 40 years, and which for acquisitions occurring
subsequent to June 30, 2001 is not amortized; branded trademarks and acquired
publication rights with indefinite lives which are not amortized; other acquired
publication rights which are amortized on a straight-line basis over periods
ranging from 5 to 30 years; and non-compete agreements, which are amortized over
the term of such agreements. If facts and circumstances indicate that long-lived
assets and/or intangible assets may be permanently impaired, it is the Company's
policy to assess the carrying value and recoverability of such assets based on
an analysis of undiscounted future cash flows of the related operations. Any
resulting reduction in carrying value based on the estimated fair value would be
charged to operating results. Estimated fair value is principally determined
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. As a result of such reviews, approximately $5.0 million and $3.6
million, relating primarily to small investments, were written-off and charged
against operating income in fiscal year 2002 and 2000, respectively.
Derivative Financial Instruments - Foreign Exchange Contracts: The Company, from
time to time, enters into forward exchange contracts as a hedge against foreign
currency asset and liability commitments, and anticipated transaction exposures.
The Company does not use financial instruments for trading or speculative
purposes.
At the beginning of the current fiscal year, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137 and No. 138, which specifies the accounting and disclosure
requirements for such instruments. Under the new standard, all derivatives are
recognized as assets or liabilities and measured at fair value. Derivatives that
are not determined to be effective hedges are adjusted to fair value with a
corresponding effect on earnings. Changes in the fair value of derivatives that
are designated and determined to be effective as part of a hedge transaction
have no immediate effect on earnings and depending on the type of hedge, are
recorded either as part of other comprehensive income and will be included in
earnings in the period in which earnings are affected by the hedged item, or are
included in earnings as an offset to the earnings impact of the hedged item. Any
ineffective portions of hedges are reported in earnings as they occur. The
adoption of these new standards as of May 1, 2001 resulted in a transition
adjustment loss of $.3 million after taxes, which is included as part of other
comprehensive income.
For a derivative to qualify as a hedge at inception and throughout the hedged
period, the Company formally documents the nature and relationships between the
hedging instruments and hedged items, as well as its risk-management objectives,
strategies for undertaking the various hedge transactions and method of
assessing hedge effectiveness. For hedges of forecasted transactions, the
significant characteristics and expected terms of a forecasted transaction are
specifically identified, and it must be probable that each forecasted
transaction will occur. If it is deemed probable that the forecasted transaction
will not occur, the gain or loss is recognized in earnings currently.
At April 30, 2002 there were open foreign exchange forward contracts for
approximately $11.9 million expiring in fiscal 2003 and designated as cash flow
hedges. During fiscal year 2002, there was no material ineffectiveness related
to the cash flow hedges, and the estimated amount of gains or losses that are
expected to be reclassified into earnings over the next year are not material.
At April 30, 2001, there were open foreign exchange forward contracts of
approximately $15.6 million relating to hedges of Euro and U.K. pound sterling
exposures, and for which $.5 million of unrealized losses were deferred.
Included in operating and administrative expenses were net foreign exchange
gains (losses) of approximately $(.3), $(.3) and $.1 million in 2002, 2001, and
2000, respectively.
Foreign Currency Translation: The Company translates the results of operations
of its foreign subsidiaries using average exchange rates during each period,
whereas balance sheet accounts are translated using exchange rates at the end of
each period. Currency translation adjustments are recorded as a component of
accumulated other comprehensive income (loss) in stockholders' equity.
Stock-Based Compensation: Stock options and restricted stock grants are
accounted for in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and the disclosure-only provisions
of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." Accordingly, the Company recognizes no compensation
expense for fixed stock option grants since the exercise price is equal to the
fair value of the shares at date of grant. For restricted stock grants,
compensation cost is generally recognized ratably over the vesting period based
on the fair value of shares.
Cash Equivalents: Cash equivalents consist primarily of highly liquid
investments with a maturity of three months or less and are stated at cost plus
accrued interest, which approximates market value.
Recent Accounting Standards: In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires all business combinations initiated after June 30, 2001 to
be accounted for by a single method - the purchase method. In addition, the
statement requires the purchase price to be allocated to identifiable intangible
assets in addition to goodwill if certain criteria are met. The statement also
requires additional disclosures related to the reasons for the business
combination, the allocation of the purchase price, and if significant by
reportable segment, to the assets acquired and liabilities assumed. SFAS No. 142
eliminates the requirement to amortize goodwill and those intangible assets that
have indefinite useful lives, but requires an annual test for impairment at the
reporting unit level. Intangible assets that have finite useful lives will
continue to be amortized over their useful lives. SFAS No. 142 will be effective
in fiscal 2002 for goodwill and other intangible assets acquired prior to July
1, 2001, and is effective immediately for acquisitions occurring after June 30,
2001. The Company is in the process of evaluating and reassessing its goodwill
and other intangible assets to determine the impact of any impairment and the
related useful lives and the corresponding amortization expense to be recorded.
The Company anticipates that approximately $10 million of fiscal year 2002
amortization, equal to $0.12 per diluted share, related to goodwill and other
intangibles with indefinite lives will be eliminated as a charge to earnings in
the future.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". This standard addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard is effective for fiscal 2004. The adoption of SFAS No. 143
is not expected to have a material impact on the Company's financial results.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This standard
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The standard is effective for fiscal 2004. The adoption of
SFAS No. 144 is not expected to have a material impact on the Company's
financial results.
Income Per Share
A reconciliation of the shares used in the computation of net income per share
for the years ended April 30, follows:
In thousands 2002 2001 2000
- ----------------------------- ----------- ---------- -----------
Weighted average shares
outstanding 60,937 60,813 62,229
Less: Unearned deferred
compensation shares
(247) (321) (505)
- ----------------------------- ----------- ---------- -----------
Shares used for basic
income per share
60,690 60,492 61,724
Dilutive effect of stock
options and other stock
awards 2,404 2,808 3,101
- ----------------------------- ----------- ---------- -----------
Shares used for diluted
income per share 63,094 63,300 64,825
- ----------------------------- ----------- ---------- -----------
Acquisitions
In September 2001, the Company acquired 100% of the outstanding shares of Hungry
Minds, Inc. (Hungry Minds) for a total purchase price of approximately $184.9
million, consisting of approximately $90.2 million in cash for the common stock
of Hungry Minds, $92.5 million in cash to enable Hungry Minds to repay its
outstanding debt, and fees and expenses of approximately $2 million. Hungry
Minds is a leading publisher with a collection of respected brands including the
For Dummies and Unofficial Guide series, the technological Bible and Visual
series, Frommer's travel guides, CliffsNotes, Webster's New World Dictionary,
Betty Crocker, Weight Watchers, and other market-leading brands. Hungry Minds
has 2,500 active titles which are available in 39 languages. The rationale for
the Hungry Minds' acquisition was to add significantly to the Company's already
strong collection of content, thereby enhancing its competitive position in the
professional/trade segment, particularly with major trade and online accounts.
The Hungry Minds brands are well known in the United States and abroad. The
Company's extensive global market reach provides the opportunity to generate
incremental revenues of the Hungry Minds brands. In addition, the acquisition
provides synergistic opportunities yielding cost savings throughout the
publishing process and in infrastructure costs.
The results of operations of Hungry Minds have been included in the Company's
consolidated financial statements since the date of acquisition. The cost of the
acquisition has been allocated on the basis of preliminary estimates of the fair
values of the assets acquired and the liabilities assumed. Final asset and
liability fair values may differ based on finalization of restructuring accruals
related to Hungry Minds' international businesses, estimated sublease income on
vacated premises, tax bases, and other considerations; however, it is
anticipated that any changes will not have a material effect, in the aggregate,
on the consolidated financial position of the Company.
The following table summarizes the preliminary estimate of the fair values of
the Hungry Minds' assets acquired and liabilities assumed at the date of
acquisition.
Dollars in Thousands
Current Assets $82,027
Product Development Assets 12,376
Property and Equipment 3,839
Goodwill 89,679
Other Intangible Assets 58,600
Deferred Income Tax Benefit 8,294
---------------
Total Assets Acquired 254,815
---------------
Current Liabilities (60,918)
Long-Term Liabilities (8,962)
---------------
Total Liabilities Assumed (69,880)
---------------
Net Assets Acquired $184,935
---------------
In fiscal 2002, the Company also acquired four other businesses for purchase
prices aggregating $35.1 million. These included: A&M Publishing Ltd., a
U.K.-based publisher for the pharmaceutical and health care sectors, GIT Verlag
GmbH, a German publisher for the chemical, pharmaceutical, biotechnology,
security and engineering industries; and Frank J. Fabozzi Publishing and an
Australian publisher, Wrightbooks Pty Ltd., both publishing high-quality finance
books for the professional market.
Intangible assets for all of the above acquisitions, including Hungry Minds,
were as follows:
Tax
Dollars in Thousands Amount Deductible
Recorded Amount
- -------------------------------------- ------------ ------------
Goodwill $103,898 977
Other Intangible Assets Not
Subject to Amortization
Branded Trademarks $57,900 48,592
Acquired Publication Rights 22,325 8,859
------------ ------------
Total $80,225 57,451
------------ ------------
Other Intangible Assets Subject
to Amortization
Acquired Publication Rights $1,919 623
Noncompete Agreements 150 150
------------ ------------
Total $2,069 773
------------ ------------
The weighted average amortization period was 10 years for acquired publication
rights, 5 years for noncompete agreements, and 10 years for the total intangible
assets subject to amortization. The following unaudited pro forma financial
information presents the results of operations of the Company as if the above
acquisitions had been consummated as of May 1, 2000. The unaudited pro forma
financial information is not necessarily indicative of the actual results that
would have been achieved had the acquisition actually been consummated as of May
1, 2000, nor is it necessarily indicative of the future results of operations.
Dollars in thousands 2002 2001
Except per share data
- --------------------------- ----------------- ----------------
Revenues $818,038 $848,285
Net Income $36,593 $56,207
Income Per Diluted Share $0.58 $0.89
- --------------------------- ----------------- ----------------
The pro forma financial information for fiscal year 2001 included a
non-recurring charge related to Hungry Minds restructuring and impairment
writedowns amounting to $3 million after taxes, or $0.05 per share. Offsetting
this charge was a non-recurring gain related to Hungry Minds revision of certain
assumptions in the calculation of its sales returns reserve resulting in
increased revenues, net income and income per share of approximately $5 million,
$3 million, and $0.05 per share, respectively.
During fiscal 2002, the Company also acquired publishing assets consisting of 47
higher education titles from Thomson Learning for approximately $16.1 million in
cash. The titles are in such publishing areas as business, earth and biological
sciences, foreign languages, mathematics, nutrition and psychology. The excess
of cost over the fair value of the tangible assets acquired amounted to
approximately $13.5 million, relating to acquired publishing rights that are
being amortized on a straight-line basis over 20 years.
In fiscal year 2001, the Company acquired interests in certain publishing
properties for approximately $10.1 million including: an environmental
remediation portal and database; a majority interest in an Oxford-based
publisher of professional business and management titles; new agreements with
certain prestigious scholarly and professional societies to publish their
journals; and an investment in an informatics company. The costs of these
investments was allocated primarily to investments, and to goodwill, acquired
publication rights and noncompete agreements that are being amortized on a
straight-line basis over estimated average lives ranging from 5 to 20 years.
In fiscal year 2000, the Company acquired certain higher education titles and
related assets for approximately $57 million in cash. The higher education
titles included such disciplines as biology/anatomy and physiology, engineering,
mathematics, economics, finance, and teacher education. In addition, the Company
acquired the Jossey-Bass publishing company from Pearson, Inc. for approximately
$81 million in cash. Jossey-Bass publishes books and journals for professionals
and executives in such areas as business, psychology and non-profit institution
management. The Company also acquired the J.K. Lasser tax and financial guides
for approximately $5 million in cash and other smaller acquisitions for
approximately $2 million. The acquisitions were financed by available cash
balances and short-term lines of credit. The cost of the acquisitions was
allocated on the basis of the fair values of the assets acquired and the
liabilities assumed. The excess of cost over the fair value of the tangible
assets acquired amounted to approximately $143 million, relating primarily to
acquired publication rights, goodwill, and noncompete agreements that are being
amortized on a straight-line basis over estimated average lives ranging from 3
to 20 years.
All prior fiscal year acquisitions have been accounted for by the purchase
method, and the accompanying financial statements include their results of
operations since their respective dates of acquisition.
Unusual Item
Fiscal 2002 operating results include an unusual charge to earnings amounting to
approximately $12.3 million, or $7.7 million after tax, equal to $0.12 per
diluted share ($0.13 per basic share) relating to the relocation of the
Company's headquarters to Hoboken, New Jersey from New York City, and includes
lease payments of approximately $10.2 million on the vacated premises through
April 2003, the term of the lease, and the accelerated depreciation of leasehold
improvements and certain furniture and fixtures and equipment of approximately
$2.1 million based on revised estimates of useful lives. The move is expected to
take place during the first quarter of fiscal 2003.
Inventories
Inventories at April 30 were as follows:
Dollars in thousands 2002 2001
- --------------------------- ----------------- ----------------
Finished Goods $62,756 $46,353
Work-in-Process 6,845 4,481
Paper, Cloth, and Other 3,811 3,020
- --------------------------- ----------------- ----------------
73,412 53,854
LIFO Reserve (3,613) (3,091)
- --------------------------- ----------------- ----------------
Total $69,799 $50,763
- --------------------------- ----------------- ----------------
Product Development Assets
Product development assets consisted of the following at April 30:
Dollars in thousands 2002 2001
- ---------------------------------- ------------ -------------
Composition Costs $29,505 $24,975
Royalty Advances 33,550 16,216
- ---------------------------------- ------------ -------------
Total $63,055 $41,191
- ---------------------------------- ------------ -------------
Composition costs are net of accumulated amortization of $55,505 in 2002 and
$52,593 in 2001.
Property and Equipment
Property and equipment consisted of the following at April 30:
Dollars in thousands 2002 2001
- -------------------------------- -------------- ---------------
Land and Land Improvements $ 3,333 $ 3,333
Buildings and Leasehold
Improvements 39,521 27,754
Furniture and Fixtures 37,355 31,752
Computer Equipment and
Capitalized Software 74,873 58,104
- -------------------------------- -------------- ---------------
155,082 120,943
Accumulated Depreciation (82,955) (68,688)
- -------------------------------- -------------- ---------------
Total $ 72,127 $ 52,255
- -------------------------------- -------------- ---------------
Intangible Assets
Intangible assets consisted of the following at April 30:
Dollars in thousands 2002 2001
- -------------------------------- ------------- -------------
Goodwill $215,142 $116,466
Branded Trademarks 57,900 -
Acquired Publication Rights 274,890 239,603
Noncompete Agreements 1,257 890
Pension 4,142 -
- -------------------------------- ------------- -------------
553,331 356,959
Accumulated Amortization (84,795) (73,198)
- -------------------------------- ------------- -------------
Total $468,536 $283,761
- -------------------------------- ------------- -------------
Other Accrued Liabilities
Included in other accrued liabilities was accrued compensation of approximately
$32.4 and $21.5 million at April 30, 2002 and 2001, respectively, and accrued
rent of $13.4 million at April 30, 2002 relating to vacated facilities.
Income Taxes
The provision for income taxes at April 30, was as follows:
Dollars in thousands 2002 2001 2000
- ---------------------------- ---------- ----------- ----------
Currently Payable
Federal $14,984 $16,606 $19,501
Foreign 7,045 10,789 6,181
State and local 1,322 354 2,618
- ---------------------------- ---------- ----------- ----------
Total Current Provision 23,351 27,749 28,300
- ---------------------------- ---------- ----------- ----------
Deferred Provision (Benefit)
Federal (2,436) (4,353)
(467)
Foreign 1,983 1,858 4,561
State and local 904 2,169 1,735
- ---------------------------- ---------- ----------- ----------
Total Deferred Provision 451 3,560 1,943
- ---------------------------- ---------- ----------- ----------
Total Provision $23,802 $31,309 $30,243
- ---------------------------- ---------- ----------- ----------
Included in the Company's consolidated statements of cash flows as cash provided
by operating activities under the changes in other assets and liabilities
caption are tax benefits related to the exercise of stock options amounting to
$8.0, $3.5 and $3.7 million for 2002, 2001, and 2000, respectively, which serve
to reduce current income taxes payable.
The Company's effective income tax rate as a percent of pretax income differed
from the U.S. federal statutory rate as shown below:
2002 2001 2000
- ------------------------------------- --------- ------- --------
U.S. Federal Statutory Rate 35.0% 35.0% 35.0%
State and Local Income Taxes
Net of Federal Income Tax Benefit 1.7 2.0 3.9
Tax Benefit Derived From FSC Income (3.0) (3.5) (3.6)
Foreign Source Earnings Taxed at
Other Than U.S. Statutory Rate (4.9) .2 -
Amortization of Intangibles 2.0 1.8 2.0
Other-Net (1.5) (.8) (.7)
- ------------------------------------- --------- ------- --------
Effective Income Tax Rate 29.3% 34.7% 36.6%
- ------------------------------------- --------- ------- --------
Deferred taxes result from temporary differences in the recognition of revenue
and expense for tax and financial reporting purposes. The components of the
provision for deferred taxes were as follows:
Dollars in thousands 2002 2001 2000
- ---------------------------------- ------- ---------- ----------
Depreciation and Amortization $(1,562) $ 404 $(1,219)
Accrued Expenses (3,138) 3,803 (1,147)
Provision for Sales Returns and
Doubtful Accounts 4,417 (3,039) (6,573)
Inventory 1,444 707 (561)
Retirement Benefits 882 (600) 752
Long-Term Liabilities (5,714) 1,000 67
Alternative Minimum Tax Credit and
Other Carryforwards - - 492
Net Operating Loss Carryforwards 861 1,690 17,205
Valuation Allowance 3,271 (305) (5,683)
Other-Net (10) (100) (1,390)
- ---------------------------------- ------- ---------- ----------
Total Deferred Provision (Benefit) $ 451 $3,560 $1,943
- ---------------------------------- ------- ---------- ----------
The significant components of deferred tax assets and liabilities at April 30
were as follows:
2002 2001
----------------- ------------------
Dollars in thousands Current Long-Term Current Long-Term
- ---------------------------- -------- -------- -------- ---------
Deferred Tax Assets
Net Operating Loss
Carryforwards $ - $ 1,875 $ - $ 2,736
Reserve for Sales Returns
and Doubtful Accounts 28,324 388 15,220 -
Inventory 848 - - -
Accrued Expenses 5,222 - - -
Costs Capitalized for Taxes - 5,783 - 3,898
Retirement and Post-
Employment Benefits - 3,890 - 4,772
Amortization of Intangibles - 7,789 - 6,393
- ---------------------------- -------- -------- --------- --------
Total Deferred Tax Assets 34,394 19,725 15,220 17,799
Less: Valuation Allowance - (9,664) - (6,393)
- ---------------------------- -------- -------- --------- --------
Net Deferred Tax Assets 34,394 10,061 15,220 11,406
- ---------------------------- -------- -------- --------- --------
Deferred Tax Liabilities
Inventory - - (1,889) -
Depreciation and Amortization - (2,292) - (90)
Accrued Expenses - (9,681) - (12,158)
Long-Term Liabilities - (11,012) - (17,095)
- ---------------------------- -------- -------- --------- --------
Total Deferred Tax
Liabilities - (22,985) (1,889) (29,343)
- ---------------------------- -------- -------- --------- --------
Net Deferred Tax Assets
(Liabilities) $34,394 $(12,924) $13,331 $(17,937)
- ---------------------------- -------- -------- --------- --------
Current taxes payable for 2002 and 2001 have been reduced by $0.9 and $ 1.3
million, respectively, relating to the utilization of net operating loss
carryforwards. At April 30, 2002, the Company had aggregate unused net operating
loss carryforwards of approximately $3.6 million which may be available to
reduce future taxable income primarily in foreign tax jurisdictions and
generally have no expiration date. In general, the Company plans to continue to
invest the undistributed earnings of its foreign subsidiaries in those
businesses, and therefore no provision is made for taxes that would be payable
if such earnings were distributed. At April 30, 2002, the undistributed earnings
of foreign subsidiaries approximated $56.7 million and, if remitted currently,
would result in additional taxes approximating $5.6 million.
Notes Payable and Debt
Long-term debt consisted of the following at April 30:
Dollars in thousands 2002 2001
- -------------------------------------- ------------ ------------
Term Loan Notes Payable Due
September 2006 $200,000 $ -
October 2002 Through 2003 65,000 95,000
---------- ---------
265,000 95,000
Less: Current portion of long-term (30,000) (30,000)
----------- ----------
debt $235,000 $ 65,000
--------- ---------
The weighted average interest rate on the term loans was 3.17% and 6.68% during
2002 and 2001, respectively; and 2.56% and 5.24% at April 30, 2002 and 2001,
respectively.
To finance the Hungry Minds acquisition, as well as to provide funds for general
working capital and other needs, in fiscal 2002, the Company obtained an
additional $300 million bank credit facility with 13 banks consisting of a $200
million five-year term loan facility to be repaid in September 2006. The Company
has the option of borrowing at the following floating interest rates: (i) at a
rate based on the London Interbank Offered Rate (LIBOR) plus an applicable
margin ranging from .625% to 1.375% depending on the coverage ratio of debt to
EBITDA; or (ii) at the higher of (a) the Federal Funds Rate plus .5% or (b)
UBS's prime rate, plus an applicable margin ranging from 0% to .375% depending
on the coverage ratio of debt to EBITDA. In addition, the Company pays a
commitment fee ranging from .125% to .225% on the unused portion of the facility
depending on the coverage ratio of debt to EBITDA.
The Company also has a $115 million credit agreement expiring on October 31,
2003, with eight banks. The credit agreement consists of a term loan of $65
million and a $50 million revolving credit facility. The Company has the option
of borrowing at the following floating interest rates: (i) Eurodollars at a rate
based on the London Interbank Offered Rate (LIBOR) plus an applicable margin
ranging from .15% to .30% depending on certain coverage ratios; or (ii) dollars
at a rate based on the current certificate of deposit rate, plus an applicable
margin ranging from .275% to .425% depending on the coverage ratio of debt to
EBITDA or (iii) dollars at the higher of (a) the Federal Funds Rate plus .5% and
(b) the banks' prime rate. In addition, the Company pays a facility fee ranging
from .10% to .20 % on the total facility depending on the coverage ratio of debt
to EBITDA.
In the event of a change of control, as defined, the banks have the option to
terminate the agreements and require repayment of any amounts outstanding.
Amounts outstanding under the term loans have mandatory repayments as follows:
Dollars in thousands 2003 2004 2005 2006 2007
- -------------------------- ------- -------- -------- -------- ----------
$30,000 $35,000 - - $200,000
The credit agreements contain certain restrictive covenants related to minimum
net worth, funded debt levels, an interest coverage ratio, and restricted
payments, including a cumulative limitation for dividends paid and share
repurchases. Under the most restrictive covenant, approximately $122 million was
available for such restricted payments as of April 30, 2002.
The Company and its subsidiaries have other short-term lines of credit
aggregating $30 million at various interest rates. Information relating to all
short-term lines of credit follows:
Dollars in thousands 2002 2001 2000
- ---------------------------------- ---------- ------- --------
End of Year
Amount outstanding $ -- $ -- $ --
Weighted average interest
rate -- -- --
During the Year
Maximum amount $70,000 $48,445 $40,749
outstanding
Average amount outstanding $14,137 $ 9,018 $15,654
Weighted average interest rate 2.9% 6.7% 5.6%
- ---------------------------------- ---------- ------- --------
Based on estimates of interest rates currently available to the Company for
loans with similar terms and maturities, the fair value of notes payable and
long-term debt approximates the carrying value.
Commitments and Contingencies
The following schedule shows the composition of rent expense for operating
leases:
Dollars in thousands 2002 2001 2000
- ------------------------------- ----------- ---------- -----------
Minimum Rental $ 21,394 $ 14,948 $ 14,614
Lease Escalation 3,069 2,484 2,352
Less: Sublease Rentals (303) -- --
- ------------------------------- ----------- ---------- -----------
Total $ 24,160 $ 17,432 $ 16,966
- ------------------------------- ----------- ---------- -----------
Future minimum payments under operating leases aggregated $271.0 million at
April 30, 2002. Annual payments under these leases are $34.5, $22.5, $21.9,
$21.6, and $20.9 million for fiscal years 2003 through 2007, respectively. The
Company has also entered into an agreement to purchase an office building in the
U.K. upon completion of construction in fiscal year 2003 for approximately $13.3
million.
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.
Retirement Plans
The Company and its principal subsidiaries have contributory and noncontributory
retirement plans that cover substantially all employees. The plans generally
provide for employee retirement between the ages of 60 and 65, and benefits
based on length of service and final average compensation, as defined.
The Company has agreements with certain officers and senior management personnel
that provide for the payment of supplemental retirement benefits during each of
the 10 years after the termination of employment. Under certain circumstances,
including a change of control as defined, the payment of such amounts could be
accelerated on a present value basis.
The Company provides life insurance and health care benefits, subject to certain
dollar limitations and retiree contributions, for substantially all of its
retired domestic employees. The cost of such benefits is expensed over the years
that the employees render service and is funded on a pay-as-you-go, cash basis.
The accumulated postretirement benefit obligation amounted to $1.0 million at
April 30, 2002 and 2001, and the amount expensed in 2002 and prior years was not
material.
The Company has a defined contribution 401(k) savings plan. The Company
contribution is based on employee contributions and the level of Company match.
The expense for this plan amounted to approximately $1.9, $1.7, and $1.5 million
in 2002, 2001 and 2000, respectively.
The components of net pension expense for the defined benefit plans were as
follows:
Dollars in thousands 2002 2001 2000
- ---------------------------------- --------- --------- ---------
Service Cost $6,174 $5,263 $5,535
Interest Cost 8,044 7,426 7,034
Expected Return on Plan Assets (6,987) (7,351) (7,321)
Net Amortization of Prior
Service Cost 511 473 470
Net Amortization of Unrecognized
Transition Asset (213) (819) (843)
Recognized Net Actuarial
(Gain) Loss 363 47 (166)
- ---------------------------------- --------- --------- ---------
Net Pension Expense $7,892 $5,039 $4,709
- ---------------------------------- --------- --------- ---------
In fiscal 2002, the domestic plan was amended to provide that final average
compensation be based on the highest three consecutive years ended December 31,
1997, or, if employed after that date, the first three consecutive years after
that date. The impact on pension expense was not material. The Company may, but
is not required to, update from time to time the ending date for the three-year
period used to determine final average compensation. The net pension expense
included above for the international plans amounted to approximately $3.8, $2.9,
and $2.9 million for 2002, 2001, and 2000, respectively.
The following table sets forth the changes in and the status of the plans'
assets and benefit obligations.
Dollars in thousands 2002 2001
------------------------------------------------- ----------------- ----------------
PLAN ASSETS
Fair Value, beginning of year $ 86,484 $ 93,779
Actual Return on Plan Assets (3,323) (3,671)
Employer Contributions 3,623 3,591
Participants' Contributions - -
Benefits Paid (4,482) (4,125)
Foreign Currency Rate Changes 238 (3,090)
------------------------------------------------- ----------------- ----------------
Fair Value, end of year $ 82,540 $ 86,484
------------------------------------------------- ----------------- ----------------
BENEFIT OBLIGATION
Balance, beginning of year $ (112,967) $ (106,350)
Service Cost (6,174) (5,263)
Interest Cost (8,044) (7,426)
Amendments (2,399) -
Actuarial Gain (Loss) 1,838 (1,400)
Benefits Paid 4,482 4,125
Foreign Currency Rate Changes (33) 3,347
------------------------------------------------- ----------------- ----------------
Balance, end of year $ (123,297) $ (112,967)
------------------------------------------------- ----------------- ----------------
Funded Status - Deficit (40,757) (26,483)
Unrecognized Net Transition Asset (93) (305)
Unrecognized Net Actuarial Loss 12,354 4,484
Unrecognized Prior Service Cost 4,987 3,266
------------------------------------------------- ----------------- ----------------
Net Accrued Pension Cost $ (23,509) $ (19,038)
------------------------------------------------- ----------------- ----------------
Amounts recognized in the balance sheet consist of:
Deferred Pension Asset $ 518 $ 2,431
Accrued Pension Liability (28,169) (21,469)
Intangible Asset 4,142 -
------------------------------------------------- ----------------- ----------------
Net Amount Recognized $ (23,509) $ (19,038)
------------------------------------------------- ----------------- ----------------
The weighted average assumptions used in determining these amounts were as
follows:
Discount Rate 7.1% 7.1%
Expected Return on Plan Assets 7.9% 8.0%
Rate of Compensation Increase 3.1% 3.0%
------------------------------------------------- ----------------- ----------------
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the retirement plans with accumulated benefit obligations in
excess of plan assets were $119,281, $105,953, and $78,088, respectively, as of
April 30, 2002, and $25,113, $21,754, and $0 respectively, as of April 30, 2001.
Equity Compensation Plans
A summary of all equity compensation plans follows:
(a) (b) (c)
Equity compensation plan Number of securities to be Weighted-average exercise Number of securities
category issued upon exercise of price of outstanding options, remaining available for
outstanding options, warrants warrants and rights future issuance under equity
and rights compensation plans (excluding
securities reflected in
column (a))
- ---------------------------------- -------------------------------- -------------------------------- ------------------------------
Approved by security holders 4,599,704 $14.44 6,487,757
Not approved by security holders None n/a None
-------------------------------- -------------------------------- -------------------------------
Total 4,599,704 $14.44 6,487,757
-------------------------------- -------------------------------- -------------------------------
Under the Company's Long Term Incentive Plan, qualified employees are eligible
to receive awards that may include stock options, performance stock awards, and
restricted stock awards subject to an overall maximum of 8,000,000 shares and up
to a maximum per year of 600,000 shares of Class A stock to any one individual.
The exercise price of options granted under the plan may not be less than 100%
of the fair market value of the stock at the date of grant. Options are
exercisable, in part or in full, over a maximum period of 10 years from the date
of grant, and generally vest within five years from the date of the grant. Under
certain circumstances relating to a change of control, as defined, the right to
exercise options outstanding could be accelerated.
The Company elected to apply the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost is
recognized for fixed stock option grants. Had compensation cost been recognized,
net income would have been reduced on a pro forma basis by $2.9 million, or
$0.05 per diluted share, in 2002; $2.2 million, or $0.04 per diluted share, in
2001; and $1.7 million, or $0.03 per diluted share, in 2000. For the pro forma
calculations, the fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for 2002, 2001, and 2000: risk-free interest rate of 5.2%, 6.2%, and
6.3%, respectively; dividend yield of 0.9%, 0.9%, and 1.0%, respectively;
volatility of 33.6%, 28.1%, and 25.7%, respectively; and expected life of seven
to nine years.
A summary of the activity and status of the Company's stock option plans
follows:
2002 2001 2000
---------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Outstanding at beginning of year 5,080,703 $11.21 4,837,693 $ 8.88 4,820,884 $ 7.04
Granted 656,143 $23.15 663,000 $23.28 517,800 $20.47
Exercised (1,131,142) $ 4.95 (414,790) $ 3.18 (476,591) $ 2.74
Canceled (6,000) $17.91 (5,200) $22.00 (24,400) $12.28
--------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Outstanding at end of year 4,599,704 $ 14.44 5,080,703 $ 11.21 4,837,693 $ 8.88
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Exercisable at end of year 2,021,876 $ 8.05 2,408,257 $ 5.81 2,245,837 $ 4.66
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
The weighted average fair value of options granted during the year was $10.19,
$9.76, and $8.69 in 2002, 2001, and 2000, respectively.
A summary of information about stock options outstanding and options exercisable
at April 30, 2002, follows:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Range of Exercise Number of Remianing Exercise Number Exercise
Prices Option Term Price of Options Price
- -------------------------------------------------------------------------------
$ 2.94 to $ 5.17 607,623 1.7 years $4.35 607,623 $ 4.35
$ 6.56 to $ 8.63 1,227,902 4.4 years $7.99 1,046,974 $ 7.89
$13.75 to $14.59 943,436 6.1 years $13.88 329,936 $ 13.99
$17.25 to $20.56 597,943 7.5 years $20.36 28,343 $ 19.68
$22.00 to $23.56 1,222,800 8.6 years $23.48 9,000 $ 23.49
- -------------------------------------------------------------------------------
Total 4,599,704 5.9 years $14.44 2,021,876 $ 8.05
- -------------------------------------------------------------------------------
Under the terms of the Company's executive long-term incentive plans, upon the
achievement of certain three-year financial performance-based targets, awards
will be payable in restricted shares of the Company's Class A Common stock. The
restricted shares vest equally as to 50% on the first and second anniversary
date after the award is earned. Compensation expense is charged to earnings over
the respective three-year period. In addition, the Company granted restricted
shares of the Company's Class A Common stock to key executive officers and
others in connection with their employment. The restricted shares generally vest
one-third at the end of the third, fourth and fifth years following the date of
the grant. Under certain circumstances relating to a change of control or
termination, as defined, the restrictions would lapse and shares would vest
earlier. Compensation expense is charged to earnings ratably over five years, or
sooner, if vesting is accelerated, from the dates of grant. Restricted shares
issued in connection with the above plans amounted to 12,000 103,762 and 40,869
shares at weighted-average fair values of $23.92, $19.98, and $18.26 per share
in 2002, 2001, and 2000, respectively. Compensation expense is charged to
earnings for the above amounted to $3.4, $2.9, and $2.6 million in 2002, 2001,
and 2000 respectively.
Under the terms of the Company's Director Stock Plan, each member of the Board
of Directors who is not an employee of the Company is awarded either (a) Class A
Common stock equal to 50% of the board member's annual cash compensation, based
on the stock price on the date of grant, or (b) stock options equal to 150% of
the annual cash compensation divided by the stock price on the date of grant.
Directors stock options are 100% exercisable at date of grant. Directors may
also elect to receive all or a portion of their cash compensation in stock.
Under this plan 1,729, 7,680 and 14,172 shares were issued in 2002, 2001, and
2000, respectively. In addition, 24,343 stock options were granted in fiscal
2002 at an exercise price of $19.54. Compensation expense related to this plan
amounted to approximately $.3, $.5, and $.4 million in 2002, 2001, and 2000,
respectively.
Capital Stock and Changes in Capital Accounts
Preferred stock consists of 2 million authorized shares with $1 par value. To
date, no preferred shares have been issued. Common stock consists of 180 million
authorized shares of Class A Common, $1 par value, and 72 million authorized
shares of Class B Common, $1 par value.
Each share of the Company's Class B Common stock is convertible into one share
of Class A Common stock. The holders of Class A stock are entitled to elect 30%
of the entire Board of Directors and the holders of Class B stock are entitled
to elect the remainder. On all other matters, each share of Class A stock is
entitled to one-tenth of one vote and each share of Class B stock is entitled to
one vote.
Under the Company's current stock repurchase program, up to 4 million shares of
its Class A common stock may be purchased from time to time in the open market
and through privately negotiated transactions. Through April 30, 2002, the
Company repurchased 2,751,850 shares at an average price of $16.80 per share for
a total cost of approximately $46.2 million under the program.
Changes in selected capital accounts were as follows:
Additional
Common Stock Paid-in Treasury
--------------------------------
Dollars in thousands Class A Class B Capital Stock
- ---------------------------------------------------- ----------------- -------------- ---------------- -----------------
Balance at May 1, 1999 $ 67,548 $ 15,642 $ 13,045 $ (85,142)
Director Stock Plan Issuance 192 68
Executive Long-Term Incentive Plan Issuance (188) (6)
Purchase of Treasury Shares (32,144)
Restricted Share Issuance (48) 120
Issuance of Shares Under Employee Savings Plan 368 139
Exercise of Stock Options 809 (860)
Other 344 (343)
- ---------------------------------------------------- ----------------- -------------- ---------------- -----------------
Balance at May 1, 2000
$67,892 $15,299 $14,178 $(117,825)
Director Stock Plan Issuance 79 26
Executive Long-Term Incentive Plan Issuance 542 272
Purchase of Treasury Shares (6,890)
Restricted Share Issuance 986 (284)
Issuance of Shares Under Employee Savings Plan 361 127
Exercise of Stock Options 2,754 (352)
Other 145 (146)
- ---------------------------------------------------- ----------------- -------------- ---------------- -----------------
Balance at May 1, 2001
$68,037 $15,153 $18,900 $(124,926)
Director Stock Plan Issuance 29 10
Executive Long-Term Incentive Plan Issuance 323 102
Purchase of Treasury Shares (1,880)
Restricted Share Issuance 296 68
Issuance of Shares Under Employee Savings Plan 502 166
Exercise of Stock Options 6,788 3,126
Other 30 (29)
- ---------------------------------------------------- ----------------- -------------- ---------------- -----------------
Balance at April 30, 2002
$68,067 $15,124 $26,838 $(123,334)
- ---------------------------------------------------- ----------------- -------------- ---------------- -----------------
Segment Information
The Company is a global publisher of print and electronic products, providing
must-have content and services to customers worldwide. Core businesses include
professional and consumer books and subscription services; scientific, technical
and medical journals, encyclopedias, books, and online products and services;
and educational materials for undergraduate and graduate students and lifelong
learners. The Company has publishing, marketing, and distribution centers in the
United States, Canada, Europe, Asia and Australia. The Company's reportable
segments are based on the management reporting structure used to evaluate
performance. Segment information is as follows:
Dollars In thousands 2002
- ----------------------- ------------------------------------------------------------------------------------------------------------
Eliminations
European Other & Corporate
Domestic Segments Segment Segments Items Total
------------------------------------------------------ --------- ---------- ----------- -----------
Scientific,
Professional/ Technical, Higher Total
Trade and Medical Education Domestic
----------- -- ------------ ----------- ---------- --------- ---------- ----------- ----------
Revenues
- - External Customers $238,060 $157,503 $119,833 $515,396 $151,442 $67,558 $ $734,396
-
- - Intersegment Sales 15,012 7,427 21,463 43,902 12,662 760 (57,324) -
----------- ------------ ----------- ---------- --------- ---------- ----------- ----------
- - Total Revenues $253,072 $164,930 $141,296 $559,298 $164,104 $68,318 $ (57,324) $734,396
----------- ------------ ----------- ---------- --------- ---------- -----------
Direct Contribution
to Profit $62,141 $67,692 $44,272 $174,105 $54,613 $15,199 - $243,917
----------- ------------ ----------- ---------- --------- ---------- --------- ----------
Shared Services &
Admin. Costs
(143,842)
Unusual Item -
Relocation Related (12,312)
Expenses
----------
Operating Income 87,763
Interest Expense-Net (6,645)
----------
Income Before Taxes $81,118
----------
Assets $397,054 $55,787 $103,496 $556,337 $198,432 $30,334 $111,042 $896,145
Goodwill Acquired $90,656 - - $90,656 $11,646 $1,596 - $103,898
Expenditures for
Other Long-Lived
Assets $122,090 $7,581 $25,458 $155,129 $34,196 $3,112 $17,740 $210,177
Depreciation &
Amortization
$19,096 $5,955 $11,330 $36,381 $11,922 $2,051 $8,968 $59,322
Dollars In thousands 2001
- ------------------------ -----------------------------------------------------------------------------------------------------------
Eliminations
European Other & Corporate
Domestic Segments Segment Segments Items Total
----------------------------------------------------- --------- ---------- ----------- ----------
Scientific,
Professional/ Technical, Higher Total
Trade and Medical Education Domestic
----------- ----------- ---------- ----------
Revenues
- - External Customers $146,480 $148,452 $112,863 $407,795 $142,798 $63,197 $ $613,790
-
- - Intersegment Sales 15,623 7,667 20,218 43,508 12,488 1,133 (57,129) -
----------- ----------- ---------- ---------- --------- ---------- ----------- ----------
- - Total Revenues $162,103 $156,119 $133,081 $451,303 $155,286 $64,330 $ (57,129) $613,790
----------- ----------- ---------- ---------- --------- ---------- ----------- ----------
Direct Contribution
to Profit $35,553 $71,475 $41,872 $148,900 $50,122 $14,730 - $213,752
----------- ----------- ---------- ---------- --------- ---------- -----------
Shared Services &
Admin. Costs
(118,328)
----------
Operating Income 95,424
Interest Expense-Net (5,197)
----------
Income Before Taxes $90,227
----------
Assets $172,364 $56,801 $84,462 $313,627 $157,436 $19,521 $97,418 $588,002
Goodwill Acquired - $2,417 - $2,417 - - - $2,417
Expenditures for
Long-Lived Assets
$17,841 $11,013 $8,108 $36,962 $13,005 $2,751 $19,736 $72,454
Depreciation &
Amortization
$15,256 $7,305 $10,216 $32,777 $11,868 $1,976 $7,260 $53,881
Dollars In thousands 2000
- ------------------------ ----------------------------------------------------------------------------------------------------------
Eliminations
European Other & Corporate
Domestic Segments Segment Segments Items Total
------------------------------------------------------ ---------- ---------- ----------- ---------
Scientific,
Professional/ Technical, Higher Total
Trade and Medical Education Domestic
------------- ----------- ---------- ---------
Revenues
- - External Customers $146,571 $143,329 $110,755 $400,655 $143,046 $62,323 $ $606,024
-
- - Intersegment Sales 16,065 7,115 18,366 41,546 10,869 743 (53,158) -
------------- ----------- ---------- --------- ---------- ---------- ----------- -------
- - Total Revenues $162,636 $150,444 $129,121 $442,201 $153,915 $63,066 $(53,158) $606,024
------------- ----------- ---------- --------- ---------- ---------- ----------- --------
Direct Contribution
to Profit $39,330 $63,754 $37,585 $140,669 $47,914 $13,269 - $201,852
------------- ----------- ---------- --------- ---------- ---------- -----------
Shared Services &
Admin. Costs
(112,848)
---------
---------
Operating Income 89,004
Interest Expense-Net (6,373)
---------
Income Before Taxes $82,631
---------
Assets $179,590 $52,896 $89,101 $321,587 $152,603 $20,954 $74,193 $569,337
Goodwill Acquired $61,618 - - $61,618 $800 - - $62,418
Expenditures for Other
Long-Lived Assets
$41,087 $6,381 $65,834 $113,302 $6,605 $2,867 $8,876 $131,650
Depreciation &
Amortization
$14,858 $8,708 $10,769 $34,335 $11,663 $1,905 $5,266 $53,169
Fiscal 2002 direct contribution to profit for the domestic, scientific,
technical and medical segment includes a charge to earnings of $5 million
representing a write-off of two small investments in an environmental
remediation portal and database and an entrepreneurial informatics company.
Intersegment sales are generally made at a fixed discount from list price.
Shared services and administrative costs include costs for such services as
information technology, distribution, occupancy, human resources, finance, and
administration. These costs are not allocated as they support the Company's
worldwide operations. Corporate assets primarily consist of cash and cash
equivalents, deferred tax benefits, and certain property and equipment. Export
sales from the United States to unaffiliated international customers amounted to
approximately $74.3, $66.0, and $62.1 million in 2002, 2001, and 2000,
respectively. The pretax income for consolidated international operations was
approximately $28.4, $30.0 and $25.5 million in 2002, 2001, and 2000,
respectively.
Worldwide revenues for the Company's core businesses were as
follows:
Dollars in thousands Revenues
- --------------------------------------------------- ---------------------------------------------------------------
2002 2001 2000
------------------ ------------------- ------------------
Professional/Trade $292,054 $196,787 $197,790
Scientific, Technical, and 276,510 259,094 253,683
Medical
Higher Education 165,832 157,909 154,551
------------------ ------------------- ------------------
Total $734,396 $613,790 $606,024
------------------ ------------------- ------------------
Revenues from external customers based on the location of the customer, and
long-lived assets by geographic area were as follows:
Dollars in thousands Revenues Long-Lived Assets
--------------------
------------------------------------------- ------------------------------------------
2002 2001 2000 2002 2001 2000
------------- ----------- ----------- ----------- ------------ ------------
Domestic $473,145 $364,559 $357,365 $446,103 $260,034 $257,041
International
United Kingdom 35,427 33,403 32,269 39,218 19,783 14,426
Germany 34,818 32,411 33,862 126,786 110,751 113,293
Other Countries 191,006 183,417 182,528 7,428 4,519 4,071
------------- ----------- ----------- ----------- ------------ ------------
Total International 261,251 249,231 248,659 173,432 135,053 131,790
------------ ----------- ----------- ----------- ------------ ------------
Total $734,396 $613,790 $606,024 $619,535 $395,087 $388,831
============= =========== =========== ========= =========== ===========
Schedule II
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 30, 2002, 2001 AND 2000
(Dollars in Thousands)
Additions
------------------------------
Balance at Charged to Deductions Balance at
Description Beginning Cost & From From Reserves End of
of Period Expenses Acquisitions Period
- --------------------------------------------- ------------- -------------- --------------- ---------------- ------------
Year Ended April 30, 2002
Allowance for sales returns(1) $ 43,118 $ 67,816 $ 30,226 $ 73,344 $ 67,816
Allowance for doubtful accounts $ 9,684 $ 2,219 $ 7,026 $ 1,921(2) $ 17,008
Year Ended April 30, 2001
Allowance for sales returns(1) $ 43,960 $ 43,118 $ - $ 43,960 $ 43,118
Allowance for doubtful accounts $ 9,414 $ 2,268 $ - $ 1,998 (2) $ 9,684
Year Ended April 30, 2000
Allowance for sales returns(1) $ 34,213 $ 43,960 $ 2,110 $ 36,323 $ 43,960
Allowance for doubtful accounts $ 7,611 $ 2,666 $ - $ 863 (2) $ 9,414
- ---------------------------------------
(1) Allowance for sales returns represents anticipated returns net of
inventory and royalty costs.
(2) Accounts written off, less recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
JOHN WILEY & SONS, INC.
----------------------------------------------------------------
(Company)
By: /s/ William J. Pesce
--------------------------------------------
William J. Pesce
President and Chief Executive Officer
By: /s/ Ellis E. Cousens
--------------------------------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
By: /s/ Peter W. Clifford
---------------------------------------------
Peter W. Clifford
Senior Vice President, Finance
& Chief Accounting Officer
Dated: June 21, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons constituting directors of the
Company on June 21, 2002.
/s/ Warren J. Baker /s/ William J. Pesce
--------------------------------------- ------------------------------------
Warren J. Baker William J. Pesce
/s/ H. Allen Fernald /s/ Naomi O. Seligman
--------------------------------------- ------------------------------------
H. Allen Fernald Naomi O. Seligman
/s/ Larry Franklin /s/ William R. Sutherland
--------------------------------------- ------------------------------------
Larry Franklin William R. Sutherland
/s/ Henry A. McKinnell /s/ Bradford Wiley II
--------------------------------------- ------------------------------------
Henry A. McKinnell Bradford Wiley II
/s/ John L. Marion, Jr. /s/ Peter Booth Wiley
--------------------------------------- ------------------------------------
John L. Marion, Jr. Peter Booth Wiley
Exhibit 16
[Arthur Andersen LLP Letterhead]
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
April 15, 2002
Dear Sir/Madam:
We have read the first, second, third and fourth paragraphs of Item 4 included
in the Form 8-K dated April , 2002 of John Wiley & Sons, Inc. to be filed with
the Securities Exchange Commission and are in agreement with the statements
contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
cc: Mr. Ellis E. Cousens, John Wiley & Sons, Inc.
Exhibit 22
SUBSIDIARIES OF JOHN WILEY & SONS, INC.(1)
Jurisdiction
In Which
Incorporated
-------------
John Wiley & Sons International Rights, Inc. Delaware
JWS HQ, LLC New Jersey
JWS DCM, LLC New Jersey
Wiley-Liss, Inc. Delaware
Wiley Publishing Services, Inc. Delaware
Wiley Periodicals, Inc. Delaware
Wiley Subscription Services, Inc. Delaware
John Wiley & Sons (Asia) Pte Ltd. Singapore
John Wiley & Sons Australia, Ltd Australia
John Wiley & Sons Canada Limited Canada
John Wiley & Sons (HK) Limited Hong Kong
Wiley Europe Limited England
Wiley Heyden Ltd England (2)
Wiley Europe (S.A.R.L.) France (2)
Wiley Distribution Services Limited England (2)
John Wiley & Sons Ltd England (2)
InPharm-Internet Services Limited England (3)
Capstone Publishing Ltd England (4)
Wiley HMI Holdings, Inc. Delaware
HMI Investment, Inc. Delaware (5)
Wiley Publishing, Inc. Delaware (6)
Wiley Dreamtech India Private Limited India (7)
Wiley Europe Investment Holdings Ltd England (5)
A&M Publishing Ltd England (8)
A&M Clinical Communication Ltd England (9)
Pharmafile Ltd England (9)
John Wiley & Sons GmbH Germany
Wiley InterScience GmbH Germany (10)
Verlag Chemie GmbH Germany (10)
Wiley-VCH Verlag GmbH & Co. KGaA Germany (10)
Wiley-GIT Publishers GmbH Germany (11)
GIT Verlag GmbH & Co. KG Germany (12)
Wiley Fachverlag GmbH Germany (11)
Wilhelm Ernst & Sohn Verlag fuer Architectur
und technische Wissenschaften GmbH & Co. KG Germany (13
Verlag Helvetica Chimica Acta AG Switzerland (11)
Wiley-VCH Verlag Schweiz AG Switzerland (14)
Physik Verlag GmbH Germany (15)
WWL, Inc. Delaware
Wiley-Japan Y.K. Japan (16)
- --------------------------------------------------------
(1) The names of other subsidiaries which would not constitute a significant
subsidiary in the aggregate have been omitted.
(2) Subsidiary of Wiley Europe Limited
(3) Subsidiary of John Wiley & Sons Limited
(4) 85% owned subsidiary of John Wiley & Sons Limited
(5) Subsidiary of Wiley HMI Holdings, Inc.
(6) Subsidiary of HMI Investment, Inc.
(7) 65% owned subsidiary of Wiley Publishing, Inc.
(8) Subsidiary of Wiley Europe Investment Holdings Ltd
(9) Subsidiary of A&M Publishing Ltd
(10) Subsidiary of John Wiley & Sons GmbH
(11) Subsidiary of Wiley-VCH Verlag GmbH & Co. KGaA
(12) Owned by Wiley-GIT Publishers GmbH (general partner) and Wiley-VCH Verlag
GmbH & Co. KGaA (limited shareholder)
(13) Owned by Wiley Fachverlag GmbH (general partner) and Wiley-VCH Verlag GmbH
& Co. KGaA (limited partner)
(14) Subsidiary of Verlag Helvetica Chimica Acta AG (15) 52% owned by Wiley-GCH
Verlag GmbH & Co. KGaA (16) Subsidiary of WWL, Inc.
Exhibit 10.13
JOHN WILEY & SONS, INC.
FY 2002 QUALIFIED EXECUTIVE LONG TERM INCENTIVE PLAN
PLAN DOCUMENT
CONFIDENTIAL
MAY 1, 2001
CONTENTS
Section Subject Page
------- ------- ----
I. Definitions 2
II. Plan Objectives 4
III. Eligibility 4
IV. Performance Measurement and Objectives 4
V. Performance Evaluation 5
VI. Restricted Performance Shares Award Provisions 6
VII. Stock Option 6
VIII. Administration and Other Matters 6
I. DEFINITIONS
Following are definitions for words and phrases used in this document. Unless
the context clearly indicates otherwise, these words and phrases are considered
to be defined terms and appear in this document in italicized print:
Company John Wiley & Sons, Inc.
plan The Company's FY (Fiscal Year) 2002 Qualified Executive Long Term
Incentive Plan as set forth in this document.
shareholder plan The Company's Long Term Incentive Plan.
plan cycle The three year period from May 1, 2001 to April 30, 2004.
Governance and Compensation Committee (the GCC) The committee of the Company's
Board of Directors (Board) responsible for reviewing executive compensation.
award period objectives The participant's objectives to achieve specific
financial results for the plan cycle, as determined by the the GCC. An award
period objective comprises one or more financial goals for a business unit (i.e,
the Company or a division).
financial results The published, audited financial results of the Company and
the divisional financial results derived therefrom.
participant A employee of the Company who is selected to participate in the
plan.
target incentive The target incentive as determined and authorized by the the
GCC at its meeting held on June 21, 2001 is a restricted performance shares
award, which represents the number of restricted performance shares that a
participant is eligible to receive if 100% of his/her applicable award period
objectives are achieved and the participant remains an employee of the Company
through April 30, 2006, except as otherwise provided in Section VIII. The target
incentive is based on the participant's position and is described in Section IV.
stock Class A Common Stock of the Company.
restricted performance share issued pursuant to this plan and the shareholder
plan that is subject to forfeiture. In the shareholder plan, such stock is
referred to as "Performance-Based Stock." The value of each restricted
performance share under this plan will be determined by reference to the stock
closing sale price, as reported by New York Stock Exchange (NYSE), on the date
the the GCC acts at the beginning of the plan cycle (June 21, 2001). In the
event the stock is not traded on June 21, 2001 or the date the the GCC acts,
whichever is later, the closing sales price shall be the price of the stock on
the next day after June 21, 2001 or the date the GCC acts on which the stock
trades.
restricted period The period during which the shares of restricted performance
shares shall be subject to forfeiture in whole or in part, as defined in the
shareholder plan, in accordance with the terms of the award.
plan end adjusted restricted performance shares award. The amount of restricted
performance shares awarded to a participant at the end of the plan cycle after
adjustments, if any, are made, as set forth in Section VIII.
payout amount plan end adjusted restricted performance shares award, as set
forth in Section VIII, to a participant under this plan, if any, for achievement
of the award period objectives, as further discussed in this plan.
performance levels
threshold The minimum acceptable level of achievement of a financial
goal in order to earn a payout, expressed as a percentage
of target ( e.g., 95% of target.)
target Achievement of the assigned financial goal-100%.
outstanding Superior achievement of financial goal, earning the maximum\
payout, expressed as a percentage of target (e.g.,
115% of target.)
payout factor Percentage of performance target deemed achieved, applied to the
target incenive amount, to determine the payout for which a participant is
eligible.
financial goals Financial measures used to determine financial performance of a
business unit. Financial goals are targets. The following financial goals are
used in this FY2002 Plan:
cash flow Net income, excluding unusual items not related to the period
being measured, plus/minus any non-cash items included in net income
and changes in operating assets and liabilities, minus normal
investments in product development assets and property and equipment.
earnings per share Earnings per share, excluding unusual items not
related to the period being measured.
divisional operating income Operating income before allocations for
corporate support services and taxes, excluding the effects of any
unusual items.
divisional cash flow Operating income before allocations and taxes,
excluding unusual items not related to the period being measured,
plus/minus any non-cash items included in divisional operating income
(other than provisions for bad debts), and changes in controllable
assets and liabilities, less normal investments in product development
assets and direct property and equipment additions. Controllable assets
and liabilities are inventory, composition, author advances, other
deferred publication costs, and deferred subscription revenues GPC
operating income divisional operating income as adjusted for the
intercompany profit earned by other divisions.
GPC cash flow divisional cash flow as adjusted for the intercompany
profit earned by other divisions.
II. PLAN OBJECTIVES
The plan is intended to provide the officers and other key employees of the
Company and of its subsidiaries, affiliates and certain Joint Venture Companies,
upon whose judgement, initiative and efforts the Company depends for its growth
and for the profitable conduct of its business, with additional incentive to
promote the success of the Company and to that end to encourage such employees
to acquire or increase their proprietary interest in the Company.
III. ELIGIBILITY
A participant is selected by the CEO and recommended for participation to the
GCC, who have sole discretion for determining eligibility, from among those
employees in key management positions deemed able to make the most significant
contributions to the growth and profitability of the Company. The President and
CEO of the Company is a participant.
IV. PERFORMANCE MEASUREMENT AND OBJECTIVES
A. Award period objectives comprising one or more business criteria chosen
from those listed in Section 7(b)(ii)(B) of the shareholder plan are
recommended by the CEO and adopted by the GCC in its sole discretion.
Award period objectives are set at a level that is challenging and
achievable.
B. Award period objectives established for each participant may include one
or more organizational level's financial goals (e.g., Company and
division), and one or more financial goals for a particular
organizational unit (e.g., divisional cash flow, divisional operating
income). The weighting of and between the organizational levels'
financial goals may vary, depending upon the participant's position.
Weighting of the participant's financial goals is recommended by the CEO
and determined by the GCC in its sole discretion.
V. PERFORMANCE EVALUATION
A. Financial Results
1. The attainment of financial goals established by the GCC shall be
determined by the GCC at the end of the plan cycle. In determining
the achievment of financial results at the end of the plan cycle,
the GCC may adjust the financial results for those events listed in
XX through XXVI in Section 7(b)(ii)(B) of the shareholder plan.
2. In determining the attainment of financial goals, the impact of any
acquistion or divestiture which closes in the final year of a plan
cycle and which is valued at greater than $5,000,000 and which is
dilutive, will be excluded in determining the financial results for
the Company or a division.
3. Award Determination
a. Acheivement of threshold performance of at least one financial goal of
a performance target is necessary for a participant to receive a
payout for that performance target.
b. The unweighted payout factor for each financial goal is determined as
follows:
1. For performance at the below threshold level, the unweighted payout factor
is zero.
2. For performance at the threshold level, the unweighted payout factor is
25%.
3. For performance between the threshold and target levels, the unweighted
payout factor is determined on a pro-rata basis.
4. For performance at the target level, the unweighted payout factor is 100%.
5. For performance between the target and outstanding levels, the unweighted
payout factor is determined on a pro-rata basis.
6. For performance at or above the outstanding level, the unweighted payout
factor is 200%.
c. A participant's payout is determined by calculating the amount
for achievement of each of the participant's performance targets,
as follows:
1. Each financial goal's unweighted payout factor x weighting of that
financial goal equals the weighted payout factor for that financial goal.
2. The sum of the weighted payout factors for all of the fiancial goals of a
business unit equals the unit payout factor.
3. The participant's target incentive times the participant's target incentive
percent times the business unit weight times the unit payout factor equals
the participant's payout for that business unit.
4. The sum of the payouts for all the business units assigned to a participant
equals a participant's total payout.
VI. RESTRICTED PERFORMANCE SHARES AWARD PROVISIONS
A. Restricted performance shares, if any, shall be awarded at the beginning of
the plan cycle, after the June 21, 2001 the GCC meeting. The amount of
restricted performance shares awarded shall be based on the proportion of
the target incentive allocated to restricted performance shares, as
determined by the GCC. In addition to the terms and conditions set forth in
the shareholder plan, the restricted period for restricted performance
shares awarded shall be as follows: subject to continued employment except
as otherwise set forth in the shareholder plan, the lapse of restrictions
on one-half of the restricted performance shares awarded will occur on the
first anniversary (April 30, 2005) of the plan end date at which time the
participant will receive a new stock certificate in a number of shares
equal to one-half of the restricted performance shares awarded with the
restrictive legend deleted, and the lapse of restrictions on the remaining
half will occur on the second anniversary (April 30, 2006) of the plan end
date at which time the participant will receive a new stock certificate in
a number of shares equal to the remaining half with the restrictive legend
deleted.
B. The final amount of restricted performance shares will be determined as
follows: The restricted performance shares established by the the GCC at
the beginning of the plan cycle multiplied times the payout factor equals
the number of shares for the plan end adjusted restricted performance
shares award. The result of this calculation will be compared to the
restricted performance shares awarded at the beginning of the plan cycle,
and the appropriate amount of restricted performance shares will be awarded
or forfeited, as required, to bring the restricted performance shares award
to the number of shares designated as the plan end adjusted restricted
performance shares award.
VII. STOCK OPTION
The participant may be granted a stock option pursuant to the shareholder plan
at the beginning of the plan cycle, representing another incentive vehicle by
which the participant is able to share in the equity growth of the Company. The
terms and conditions of the award of the stock option are contained in the
shareholder plan and in the stock option award.
VIII. ADMINISTRATION AND OTHER MATTERS
A. This plan will be administered by the GCC, which will have authority in its
sole discretion to interpret and administer this plan, including, without
limitation, all questions regarding eligibility and status of any
participant, and no participant shall have any right to receive any
restricted performance shares or payment of any kind whatsoever, except as
determined by the the GCC hereunder.
B. The Company will have no obligation to reserve or otherwise fund in advance
any amount which may become payable under the plan.
C. Restricted performance shares, stock options awarded and any cash paid out
under this plan shall not be considered as compensation for purposes of
defining compensation for retirement, savings or supplemental executive
retirement plans, or similar type plans.
D. This plan may not be modified or amended except with the approval of the
GCC.
E. In the event of a conflict between the provisions of this plan and the
provisions of the shareholder plan, the provisions of the shareholder plan
shall apply.
Exhibit 10.14
JOHN WILEY & SONS, INC.
FY 2002 QUALIFED EXECUTIVE ANNUAL INCENTIVE PLAN
PLAN DOCUMENT
CONFIDENTIAL
MAY 1, 2001
CONTENTS
Section Subject Page
------- ------- ----
I. Definitions 2
II. Plan Objectives 3
III. Eligibility 3
IV. Performance Targets and Measurement 3
V. Performance Evaluation 4
VI. Payouts 4
VII. Administration and Other Matters 5
I. DEFINITIONS
Following are definitions for words and phrases used in this document. Unless
the context clearly indicates otherwise, these words and phrases are considered
to be defined terms and appear in this document in italicized print:
Company John Wiley & Sons, Inc.
business unit The Company or a division of the Company..
plan The Company's Qualified Executive Annual Incentive Plan.
Executive Annual Incentive Plan The plan, adopted by the shareholders of the
Company in September, 1999, for which this document is the principle
administrative instrument. plan year The twelve month period from May 1, 2001 to
April 30, 2002.
Governance and Compensation Committee (GCC) The committee of the Company's Board
of Directors (Board) responsible for reviewing executive compensation.
performance targets A participant's objective to achieve specific financial
goals for FY 2002, as approved by the GCC and communicated in writing. A
performance target comprises all of the financial goals for a business unit
(i.e., the Company or a division).
financial goals Financial measures used to determine financial performance of a
business unit. Financial goals are targets. The following financial goals are
used in this FY2002 Plan:
revenue (corporate) Gross annual revenue, net of provision for
returns.
cash flow Net income, excluding unusual items not related to the period
being measured, plus/minus any non-cash items included in net income
and changes in operating assets and liabilities, minus normal
investments in product development assets and property and equipment.
earnings per share Earnings per share, excluding unusual items not
related to the period being measured.
revenue (divisional) Gross annual revnue, net of actual returns.
divisional operating income Operating income before allocations for
corporate support services and taxes, excluding the effects of any
unusual items.
divisional cash flow Operating income before allocations and taxes,
excluding unusual items not related to the period being measured,
plus/minus any non-cash items included in divisional operating income
(other than provisions for bad debts), and changes in controllable
assets and liabilities, less normal investments in product development
assets and direct property and equipment additions. Controllable assets
and liabilities are inventory, composition, author advances, other
deferred publication costs, and deferred subscription revenues
financial results The published, audited financial results of the Company and
the divisional financial results derived therefrom.
participant A employee of the Company who is selected to participate in the
plan.
base salary The participant's base salary as of July 2, 2001, or the date of
hire, or promotion into the plan, if later, adjusted for any increases or
decreases during FY 2002, on a prorated basis and adjusted for any amount of
time the participant may not be in the plan for reasons of hire, death,
disability, retirement and/or termination.
payout Actual gross dollar amount paid to a participant under the plan, if any,
for achievement of assigned performance targets, as further discussed in this
plan.
total annual incentive opportunity The total target amount, expressed as a
percent of base salary, which a participant is eligible to receive from all
annual incentive programs, including this plan.
target incentive percent The percent applied to the participant's total annual
incentive opportunity to determine the target incentive amount for this plan.
Generally, for the plan year 2002, the target incentive percent for this plan is
75%.
target incentive amount The amount that a participant is eligible to receive if
a participant achieves 100% of his/her performance target for a business unit.
The sum of the target incentive amounts for all business units assigned to a
participant is the total target incentive amount.
performance levels
threshold The minimum acceptable level of achievement of a financial
goal in order to earn a payout, expressed as a percentage
of target ( e.g., 95% of target.)
target Achievement of the assigned financial goal-100%.
outstanding Superior achievement of performance target, earning the
maximum payout, expressed as a percentage of target (e.g.,
115% of target.)
payout factor Percentage of performance target deemed achieved, applied to the
target incenive amount, to determine the payout for which a participant is
eligible.
II. PLAN OBJECTIVES
The plan is intended to provide the officers and other key employees of the
Company and of its subsidiaries, affiliates and certain Joint Venture Companies,
upon whose judgement, initiative and efforts the Company depends for its growth
the profitable conduct of its business, with additional incentive to promote the
success of the Company
III. ELIGIBILITY
A participant is selected by the President and CEO of the company from among
those employees in key management positions deemed able to make the most
significant contributions to the growth and profitability of the company, with
the approval of the GCC. The President and CEO of the company is a participant.
IV. PERFORMANCE TARGETS AND MEASUREMENT
A. Performance targets are recommended by the CEO and adopted by the GCC in
their sole discretion, not later than 90 days after the commencement of the
fiscal year and may not be changed once determined and adopted by the GCC.
B. Performance targets, comprising one or more business criteria chosen from
those listed in Section 4(b)(ii) of the Executive Annual Incentive Plan,
are recommended by the CEO and adopted by the GCC, in their sole
discretion, for each business unit. Each financial goal is assigned a
weight, such that the sum of the weights of all of the financial goals for
a business unit equals 100%.
C. The CEO recommends and the GCC adopts, in their sole discretion, the
assignment of an appropriate mix of business unit performance targets to
each participant, based on the participant's position responsibilities and
his ability to affect the results of the assigned business unit. Each
business unit is assigned a weight, such that the sum of the weights of all
business units equals 100%.
D. The CEO recommends and the GCC adopts definitions of performance levels
(threshold, target and outstanding) for each financial goal.
V. PERFORMANCE EVALUATION
A. At the end of the plan year the financial results achieved by the Company
and by each division are compared with previously set financial goals to
determine the payout for each participant. The GCC may adjust the
financial results for those events (1) through (7) in Section 4(b)(ii) of
the Executive Annual Incentive Plan that occur during the plan year.
B. Award Determination
1. Acheivement of threshold performance of at least one financial goal of
a performance target is necessary for a participant to receive a
payout for that performance target.
2. The unweighted payout factor for each financial goal is determined as
follows::
a. For performance at the below threshold level, the unweighted
payout factor is zero.
b. For performance at the threshold level, the unweighted payout
factor is 25%.
c. For performance between the threshold and target levels, the
unweighted payout factor is determined on a pro-rata basis.
d. For performance at the target level, the unweighted payout factor
is 100%.
e. For performance between the target and outstanding levels, the
unweighted payout factor is determined on a pro-rata basis.
f. For performance at or above the outstanding level, the unweighted
payout factor is 200%.
3. A participant's payout is determined by calculating the amount for
achievement of each of the participant's performance targets, as
follows:
a. Each financial goal's unweighted payout factor x weighting of
that financial goal equals the weighted payout factor.
b. The sum of the weighted payout factors for a business unit equals
the unit payout factor.
c. The participant's base salary times the participant's target
incentive percent times the business unit weight times the unit
payout factor equals the participant's payout for that business
unit.
d. The sum of the payouts for all the business units assigned to a
participant equals a participant's total payout.
VI. PAYOUTS
A. Payouts will be made within 90 days after the end of the plan year.
B. In the event of a participant's death, disability, retirement or leave of
absence prior to payout from the plan, the payout, if any, will be
determined by the GCC.
C. A participant who resigns, or whose employment is terminated by the
Company, with or without cause, before payout from the plan is distributed,
will not receive a payout. Exception to this provision shall be made only
with the approval of the GCC, in its sole discretion.
D. A participant who transfers between divisions of the Company, will have
his/her payout prorated to the nearest fiscal quarter for the time spent in
each division, based on the achievement of performance target established
for the position in each division.
D. A participant who is appointed to a position with a different target
incentive percent will have his/her payout prorated to the nearest fiscal
quarter for the time spent in each position, based on the achievement of
performance target established for each position.
E. A participant who is hired or promoted into an eligible position during the
plan year may receive a prorated payout as determined by the GCC, in its
sole discretion.
VII. ADMINISTRATION AND OTHER MATTERS
A. The plan is effective for the plan year. It will terminate, subject to
payout, if any, in accordance with and subject to the provisions of this
plan.
B. This plan will be administered by the GCC who will have authority to
interpret and administer this plan, including, without limitation, all
questions regarding eligibility and status of the participant.
C. This plan may be withdrawn, amended or modified at any time, for any
reason, in writing, by the Company.
D. The determination of an award and payout under this plan, if any, is
subject to the approval of the GCC, in their sole discretion
E. No participant shall have any vested rights under this plan. This plan does
not constitute a contract.
F. All deductions and other withholdings required by law shall be made to the
participant's payout, if any.
Exhibit 10.15
JOHN WILEY & SONS, INC.
FY 2002 EXECUTIVE ANNUAL STRATEGIC MILESTONES INCENTIVE PLAN
ADMINISTRATIVE DOCUMENT
CONFIDENTIAL
MAY 1, 2001
CONTENTS
Section Subject Page
------- ------- ----
I. Definitions 2
II. Plan Objectives 3
III. Eligibility 3
IV. Performance Objectives and Measurement 3
V. Performance Evaluation 3
VI. Payouts 5
VII. Administration and Other Matters 6
I. DEFINITIONS
Following are definitions for words and phrases used in this document. Unless
the context clearly indicates otherwise, these words and phrases are considered
to be defined terms and appear in this document in italicized print:
company John Wiley & Sons, Inc.
plan The company's Fiscal Year 2002 Executive Annual Strategic Milestones
Incentive Plan described in this document and any written amendments to this
document.
plan year The twelve month period from May 1, 2001 to April 30, 2002.
Governance and Compensation Committee (the Committee) The committee of the
company's Board of Directors (Board) responsible for reviewing executive
compensation.
strategic milestone A participant's objective to achieve specific results for FY
2002, including interim revised strategic milestones, if any, as approved and
communicated in writing, as described in Sections IV and V below. Strategic
milestones are leading indicators of performance.
participant Any person who is eligible to and is selected to participate in the
plan, as defined in Section III.
base salary The participant's base salary as of July 2, 2002, or the date of
hire, or promotion into the plan, if later, adjusted for any increases or
decreases during FY 2002, on a prorated basis and adjusted for any amount of
time the participant may not be in the plan for reasons of hire, death,
disability, retirement and/or termination.
payout Actual gross dollar amount paid to a participant under the plan, if any,
for achievement of strategic milestones, as further discussed in this plan.
total annual incentive opportunity The total target amount a participant is
eligible to receive from all annual incentive programs, including this plan.
target incentive percent The percent applied to the participant's total annual
incentive opportunity to determine the target incentive amount. Generally, for
the plan year 2002, the target incentive percent is 25%.
target incentive amount The amount, if any, that a participant is eligible to
receive if a participant achieves 100% of his/her strategic milestones.
performance levels
threshold The minimum acceptable level of achievement of strategic
milestones. If threshold performance is achieved against all strategic
milestones, a participant may earn 25% of the target incentive amount for
which he/she is eligible.
target Achievement in aggregate of target strategic milestones. Each
individual strategic milestone is set at a level that is both challenging
and achievable.
outstanding Superior achievement of strategic milestones, both in quality
and scope, with limited time and resources. If outstanding performance is
achieved against strategic milestones, the maximum amount a participant
may earn is 200% of the target incentive amount.
payout factor Percentage of strategic milestones deemed achieved, applied to the
target incentive amount, used to determine the payout for which a participant is
eligible.
II. PLAN OBJECTIVES
The purpose of the FY 2002 Executive Annual Strategic Milestones Incentive Plan
is to enable the company to reinforce and sustain a culture devoted to excellent
performance, reward significant contributions to the success of Wiley, and
attract and retain highly qualified executives.
III. ELIGIBILITY
The participant is selected by the President and CEO of the company, from among
those employees in key management positions deemed able to make the most
significant contributions to the growth and profitability of the company, with
the approval of the GCC. The President and CEO of the company is a participant.
IV. PERFORMANCE OBJECTIVES AND MEASUREMENT
A. Strategic milestones are non-financial individual objectives over which the
participant has a large measure of control, which lead to, or are expected
to lead to improved performance for the company in the future. Strategic
milestones are determined near the beginning of the plan year by the
participant, and approved by CEO or the participant's manager, if the CEO
is not the participant's manager.
B. The strategic milestones for the President and CEO are reviewed and
approved by the GCC.
C. The strategic milestones for the President and CEO should be appropriately
reflected in those of all other employees at all levels. Each participant
collaborates with his/her manager in setting strategic milestones. The
strategic milestones may be revised during the plan year, as appropriate.
D. The determination of strategic milestones includes defining a target level
of performance and the measure of such, and may include defining threshold
and outstanding levels of performance and the measures of such.
V. PERFORMANCE EVALUATION
A. Achievement of a participant's strategic milestones will be determined at
the end of the plan year by comparing results achieved to previously set
objectives.
B. Each participant's manager will recommend a payout factor for achievement
of all strategic milestones compared with the previously set objectives. In
determining the payout factor, the overall performance on all strategic
milestones will be considered. The CEO will recommend to the GCC for
approval the payout factors for all other participants. The GCC will
recommend to the Board for approval the payout factor for the CEO
C. Award Determination
STRATEGIC MILESTONES PAYOUT AMOUNT
total annual incentive opportunity X target incentive percent X payout factor
= Strategic Milestones Payout Eligibility
1. Notwithstanding anything to the contrary, the maximum payout, if any,
a participant may receive is 200% of the target incentive amount.
2. The foregoing Strategic Milestones payout eligibility calculation is
intended to set forth general guidelines on how awards are to be
determined. The purpose of this plan is to motivate the participant to
perform in an outstanding manner. The President and CEO has discretion
under this plan to take into consideration the contribution of the
participant, the participant's management of his/her organizational
unit and other relevant factors, positive or negative, which impact
the company's, the participant's organizational unit(s), and the
participant's performance overall in determining whether to recommend
granting or denying an award, and the amount of the award, if any. If
the participant is the President and CEO, such discretion is exercised
by the GCC and the Board.
VI. PAYOUTS
A. Payouts will be made within 90 days after the end of the plan year.
B. In the event of a participant's death, disability, retirement or leave of
absence prior to payout from the plan, the payout, if any, will be
determined by the President and CEO in his/her sole discretion, subject to
any approval of the GCC, subject to any required Board approvals. If the
participant is the President and CEO, such approval is required by the
Board..
C. A participant who resigns, or whose employment is terminated by the
company, with or without cause, before payout from the plan is distributed,
will not receive a payout. Exception to this provision shall be made only
with the approval of the Committee, subject to any required Board
approvals. If the participant is the President and CEO, such approval is
required by the Board.
D. A participant who transfers between divisions of the company, will have
his/her payout prorated to the nearest fiscal quarter for the time spent in
each division, based on the achievement of strategic milestones established
for the position in each division, and based upon a judgment of the
participant's contribution to the achievement of goals in each position,
including interim revisions, if appropriate.
E. A participant who is appointed to a position with a different target
incentive percent will have his/her payout prorated to the nearest fiscal
quarter for the time spent in each position, based on the achievement of
strategic milestones established for each position.
F. A participant who is hired or promoted into an eligible position during the
plan year may receive a prorated payout as determined by the CEO, in
his/her sole discretion, subject to the approval of the Committee.
VII. ADMINISTRATION AND OTHER MATTERS
A. The plan is effective for the plan year. It will terminate, subject to
payout, if any, in accordance with and subject to the provisions of this
plan.
C. This plan will be administered by the CEO, who will have authority to
interpret and administer this plan, including, without limitation, all
questions regarding eligibility and status of the participant, subject to
the approval of the Committee required under this plan or the by-laws of
the company.
C. This plan may be withdrawn, amended or modified at any time, for any
reason, in writing, by the company.
D. The determination of an award and payout under this plan, if any, is
subject to the approval of the President and CEO, the Committee, and the
Board. This plan does not confer upon any participant the right to receive
any payout, or payment of any kind whatsoever.
E. No participant shall have any vested rights under this plan. This plan does
not constitute a contract.
G. All deductions and other withholdings required by law shall be made to the
participant's payout, if any.