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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended July 31, 2002 Commission File No. 1-11507
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from to
JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5593032
- ----------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 RIVER STREET, HOBOKEN NJ 07030
- ---------------------------- -------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (201) 748-6000
-------------------------------------
NOT APPLICABLE
-----------------------------------------------------------------
Former name, former address, and former fiscal year,
if changed since last report
Indicate by check mark, whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding of each of the Registrant's classes of common
stock as of July 31, 2002 were:
Class A, par value $1.00 - 50,111,154
Class B, par value $1.00 - 11,636,664
This is the first page of a 20 page document
JOHN WILEY & SONS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements.
Condensed Consolidated Statements of Financial Position - Unaudited
as of July 31, 2002 and 2001, and April 30, 2002......................3
Condensed Consolidated Statements of Income - Unaudited
for the Three Months ended July 31, 2002 and 2001.....................4
Condensed Consolidated Statements of Cash Flows - Unaudited
for the Three Months ended July 31, 2002 and 2001....................5
Notes to Unaudited Condensed Consolidated Financial Statements......6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................12-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........16-17
Item 4. Controls and Procedures...............................................17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................17
"Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995.........................18
SIGNATURES AND CERTIFICATIONS..............................................19-20
EXHIBITS
99.1 - 18 U.S.C. Section 1350 Certificate by Company Officers
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
July 31, April 30,
------------------------------------
Assets 2002 2001 2002
---------------- --------------- ----------------
Current Assets
Cash and cash equivalents $ 9,850 6,131 $ 39,705
Accounts receivable 130,653 96,056 101,084
Taxes receivable 7,926 - 18,664
Inventories 80,051 50,611 69,799
Deferred income tax benefits 33,622 14,170 34,394
Prepaid expenses 9,111 9,217 11,613
---------------- --------------- ----------------
Total Current Assets 271,213 176,185 275,259
Product Development Assets 57,388 42,848 63,055
Property and Equipment 95,827 53,738 72,127
Intangible Assets 471,811 281,171 464,394
Deferred income tax benefits 1,794 2,956 1,351
Other Assets 20,064 17,681 19,959
---------------- --------------- ----------------
Total Assets $ 918,097 574,579 $ 896,145
================ =============== ================
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable and current portion of long-term debt $ 55,000 30,000 $ 30,000
Accounts and royalties payable 103,264 61,807 67,516
Deferred subscription revenues 82,097 76,054 125,793
Accrued income taxes 13,652 11,426 9,769
Other accrued liabilities 66,434 34,095 87,315
---------------- --------------- ----------------
Total Current Liabilities 320,447 213,382 320,393
Long-Term Debt 235,000 65,000 235,000
Other Long-Term Liabilities 51,133 35,286 49,827
Deferred Income Taxes 14,572 21,154 14,275
Shareholders' Equity 296,945 239,757 276,650
---------------- --------------- ----------------
Total Liabilities & Shareholders' Equity $ 918,097 574,579 $ 896,145
================ =============== ================
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands except per share information)
Three Months
Ended July 31,
-----------------------------------
2002 2001
---------------- ----------------
Revenues $ 206,437 161,044
Costs and Expenses
Cost of sales 68,721 49,928
Operating and administrative expenses 102,367 76,233
Amortization of intangibles 2,176 4,346
Unusual Item - Relocation related expenses 2,465 -
---------------- ----------------
Total Costs and Expenses 175,729 130,507
---------------- ----------------
Operating Income 30,708 30,537
Interest Income and Other 293 439
Interest Expense (2,030) (1,143)
---------------- ----------------
Interest Expense - Net (1,737) (704)
---------------- ----------------
Income Before Taxes 28,971 29,833
Provision For Income Taxes 8,941 10,292
---------------- ----------------
Net Income $ 20,030 19,541
================ ================
Income Per Share
Diluted $ .32 .31
Basic $ .32 .32
Cash Dividends Per Share
Class A Common $ .05 .05
Class B Common $ .05 .05
Average Shares
Diluted 63,573 63,075
Basic 61,658 60,589
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
(In thousands)
Three Months
Ended July 31,
-----------------------------------------
2002 2001
---------------- --------------
Operating Activities
Net income $ 20,030 19,541
Non-cash items
Amortization of Intangibles 2,176 4,346
Amortization of Composition Costs 7,113 5,369
Depreciation of Property and Equipment 4,219 3,626
Other non-cash items 18,207 7,904
Net change in operating assets and liabilities (59,347) (70,501)
---------------- --------------
Cash Used for Operating Activities (7,602) (29,715)
---------------- --------------
Investing Activities
Additions to product development assets (9,181) (8,798)
Additions to property and equipment (25,510) (5,201)
Acquisition of publishing assets (7,812) (2,062)
---------------- --------------
Cash Used for Investing Activities (42,503) (16,061)
---------------- --------------
Financing Activities
Net borrowings of short-term debt 25,000 -
Purchase of treasury shares (3,531) (1,543)
Cash dividends (3,094) (2,738)
Proceeds from exercise of stock options 1,125 1,931
---------------- --------------
Cash Provided By (Used for) Financing Activities 19,500 (2,350)
---------------- --------------
Effects of Exchange Rate Changes on Cash 750 1,310
---------------- --------------
Cash and Cash Equivalents
Decrease for Period (29,855) (46,816)
Balance at Beginning of Period 39,705 52,947
---------------- --------------
Balance at End of Period $ 9,850 6,131
================ ==============
Cash Paid/(Refunded) During the Period for
Interest $ 5,394 1,518
Income taxes $ (6,594) 3,587
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the Company's
consolidated financial position as of July 31, 2002 and 2001, and April 30,
2002, and results of operations and cash flows for the periods ended July
31, 2002 and 2001. The results for the three months ended July 31, 2002 are
not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the most recent audited
financial statements contained in the Company's Form 10-K for the fiscal
year ended April 30, 2002.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Certain prior year amounts have been reclassified for comparability
purposes.
2. Comprehensive income was as follows:
Three Months
Ended July 31,
--------------------------
2002 2001
----------- ------------
(thousands)
Net Income $20,030 19,541
Other Comprehensive Income (Loss) - Transition
adjustment for cash flow hedges as of May
1, 2001 - (583)
Current period change in fair value of cash flow
hedges 168 (15)
Foreign currency translation adjustments 2,836 557
----------- ------------
Comprehensive Income $23,034 19,500
----------- ------------
A reconciliation of accumulated other comprehensive gain (loss) follows:
Three Months
Ended July 31, 2002
------------------------------------------------------
(thousands)
Foreign Cash
Currency Flow
Translation Hedges Total
---------------- ------------- --------------
Beginning Balance $ (2,534) (168) (2,702)
Change for period 2,836 168 3,004
---------------- ------------- --------------
Ending Balance $ 302 - 302
---------------- ------------- --------------
3. A reconciliation of the shares used in the computation of income per
share follows:
Three Months
Ended July 31,
-----------------------------------------
2002 2001
------------------ ------------------
(thousands)
Weighted average shares outstanding
61,822 60,846
Less: Unearned deferred compensation shares (164) (257)
------------------ ------------------
Shares used for basic income per share 61,658 60,589
Dilutive effect of stock options and other stock awards 1,915 2,486
------------------ ------------------
Shares used for diluted income per share 63,573 63,075
------------------ ------------------
4. Inventories were as follows:
July 31, April 30,
--------------------------------
2002 2001 2002
-------------- -------------- -------------
(thousands)
Finished goods $69,105 46,413 $62,756
Work-in-process 7,710 4,293 6,845
Paper, cloth and other 6,949 3,396 3,811
-------------- -------------- -------------
83,764 54,102 73,412
LIFO reserve (3,713) (3,491) (3,613)
-------------- -------------- -------------
Total inventories $80,051 50,611 $69,799
-------------- -------------- -------------
5. 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:
Three Months Ended July 31,
-----------------------------------------------------------------------------------
2002 2001
----------------------------------------- --------------------------------------
(thousands)
Inter- Inter-
Revenues External segment External segment
- --------
Customers Sales Total Customers Sales Total
-------------- ------------- ------------ ------------- ----------- ------------
U.S. Segments:
Professional/Trade $63,397 6,784 70,181 $35,769 3,587 39,356
Scientific, Technical, and Medical 40,638 1,819 42,457 38,554 1,562 40,116
Higher Education 38,047 6,868 44,915 36,394 5,940 42,334
European Segment 43,432 4,460 47,892 34,389 3,366 37,755
Other Segment 20,923 237 21,160 15,938 219 16,157
Eliminations - (20,168) (20,168) - (14,674) (14,674)
-------------- ------------- ------------ ------------- ----------- ------------
Total Revenues $206,437 - 206,437 $161,044 - 161,044
-------------- ------------- ------------ ------------- ----------- ------------
Direct Contribution to Profit
- -----------------------------
U.S. Segments:
Professional/Trade $14,292 $7,264
Scientific, Technical, and Medical 20,317 17,939
Higher Education 18,158 17,117
European Segment 16,036 13,350
Other Segment 3,612 3,420
------------ ------------
Total Direct Contribution to Profit 72,415 59,090
Shared Services and Administrative Costs
Distribution (11,054) (6,958)
Information Technology (8,522) (6,860)
Finance (7,367) (4,822)
Other Administration (12,299) (9,913)
------------ ------------
Total Shared Services and Administration Costs (39,242) (28,553)
Unusual Items - Relocation Expenses (2,465) -
------------ ------------
Operating Income 30,708 30,537
Interest Expense - Net (1,737) (704)
------------ ------------
Income Before Taxes $28,971 $29,833
------------ ------------
6. Acquisitions
In the first quarter of fiscal year 2003 the Company made three
acquisitions totaling approximately $7.8 million including a $6.5 million
acquisition of teacher education titles from Prentice Hall Direct/Pearson
Education.
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 $2.2 million. The acquisition including 2,500 active titles
which are available in 39 languages. Well-know 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 fiscal year 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.
7. 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.
On May 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." 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 or more frequently if impairment indicators arise.
Intangible assets that have finite useful lives will continue to be
amortized over their useful lives. The Company completed the initial
evaluation and assessment of its goodwill and other intangible assets in
accordance with SFAS 142. No impairment charge was required.
The following table represents unaudited adjusted results of operations of
the Company, giving effect to SFAS No. 142 as if it were adopted on May 1,
2001:
Three Months Ended July 31,
-------------------------------------------
2002 2001
----------------- ------------------
(thousands)
Net income, as reported $20,030 19,541
Add back: amortization expense net of tax
Indefinite lived intangibles - 1,001
Goodwill - 970
----------------- ------------------
Adjusted net income $20,030 21,512
Income per Diluted Share:
As reported $0.32 0.31
Adjusted $0.32 0.34
Income per Basic Share:
As reported $0.32 0.32
Adjusted $0.32 0.36
The following table summarizes the activity in goodwill by segment (in
thousands):
Cummulative
As of Acquisitions & Translation & As of
April 30, 2002 Dispositions Other Adjustments July 31, 2002
-------------------- ------------------ ------------------ -------------------
Professional/Trade $146,191 - (573) 145,618
Scientific, Technical and Medical 23,193 - - 23,193
European 18,010 - 1,957 19,967
Other 1,705 - 18 1,723
-------------------- ------------------ ----------------- ------------------
Total $189,099 - 1,402 190,501
The following table summarizes the activity in other intangibles subject to
amortization (in thousands):
As of As of
July 31, 2002 April 30, 2002
------------------- -----------------
Acquired publication rights $150,971 263,392
Accumulated amortization (35,447) (57,815)
------------------- -----------------
Net acquired publication rights 115,524 205,577
Covenants not to compete 1,040 1,257
Accumulated amortization (686) (937)
------------------- -----------------
Net covenants not to compete 354 320
------------------- -----------------
Total $115,878 205,897
=================== =================
The following table summarizes other intangibles not subject to
amortization (in thousands):
As of As of
July 31, 2002 April 30, 2002
------------------------ ---------------------
Acquired publication rights $107,532 11,498
Branded trademarks 57,900 57,900
------------------------ ---------------------
$165,432 69,398
======================== =====================
The Company recorded amortization expense of $2.2 million for the three
months ended July 31, 2002 and $2.0 million on an adjusted basis for the
three months ended July 31, 2001. Based on the current amount of intangible
assets subject to amortization, the estimated amortization expense for each
of the succeeding 5 years are as follows: Fiscal 2003 $8.6 million; 2004
$8.4 million; 2005 $8.3 million, 2006 $8.0 million and 2007 $7.9 million.
As acquisitions and dispositions occur in the future and as purchase price
allocations are finalized, these amounts may vary.
8. Recent Accounting Standards
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 year 2004. The
adoption of SFAS No. 143 is not expected to have a material impact on the
Company's financial position or results of operations.
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 year
2003. The adoption of SFAS No. 144 had no effect on the Company's financial
position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. Statement 146, which is effective
prospectively for exit or disposal activities initiated after December 31,
2002, applies to costs associated with an exit activity, including
restructurings, or with a disposal of long-lived assets. SFAS 146 requires
that exit or disposal costs are recorded as an operating expense when the
liability is incurred and can be measured at fair value. The adoption of
SFAS 146 is not expected to have a material effect on the Company's
financial position or results of operations.
9. Unusual Item
The first quarter fiscal 2003 results include an unusual charge of
approximately $2.5 million, or $1.5 million after taxes, equal to $0.02 per
diluted and basic share relating to the relocation of the Company's
headquarters to Hoboken, New Jersey from New York City, and includes
duplicate rent payments and moving expenses. In fourth quarter of fiscal
year 2002, the Company reported an unusual charge of $12.3 million or $7.7
million after tax related to the relocation, including lease payments of
approximately $10.2 million on the vacated premises. Included in the
balance sheet at July 31, 2002 are accrued expenses of $11.3 million
principally related to lease payments on the vacated offices in New York
City.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER ENDED JULY 31, 2002
Net income increased 10% to $21.5 million or $0.34 per diluted share, for the
quarter, excluding $1.5 million of unusual charges related to the relocation of
the company's headquarters and including the effect of the adoption of Statement
of Financial Accounting Standards ("SFAS") No. 142 compared with $19.5 million
or $0.31 per diluted share in the first quarter last year. Including the unusual
charges, net income in the first quarter of 2003 increased 3% to $20.0 million
or $0.32 per diluted share, as compared to the prior year's quarter.
Revenues for the first quarter of 2003 of $206.4 million increased 28%, from
$161.0 million in the prior year's quarter. The first quarter revenue increase
was due to the combined effects of contributions from acquisitions, most notably
Hungry Minds, and organic growth. Excluding Hungry Minds, revenues for the
quarter were up 8% over the prior year.
In the first quarter, cost of sales and operating and administrative expenses
increased by 38% and 34%, respectively. These increases were primarily due to
the addition of Hungry Minds. In addition, the increase in operating and
administrative expenses was due to incremental costs related to other
acquisitions and foreign currency translation effects.
Operating income for the current quarter, excluding relocation expenses,
increased 9% to $33.2 million, compared to $30.5 million in the prior year.
Including the relocation charge, operating income increase 1% to $30.7 million.
Pro forma results of operations for the first quarter excluding the unusual
relocation charges were as follows:
Three Months Ended July 31,
----------------------------------------
2002 2001
----------------- ------------------
(thousands)
Operating income as reported $30,708 30,537
Unusual relocation charge 2,465 -
----------------- ------------------
Operating income before unusual charge $33,173 30,537
================= ==================
Net income as reported $20,030 19,541
Unusual relocation charge, net of taxes 1,479 -
----------------- ------------------
Net income before unusual charge $21,509 19,541
================= ==================
Income per diluted share as reported $.32 .31
Unusual relocation charge, net of taxes .02 -
----------------- ------------------
Income per diluted share before unusual charge $.34 .31
================= ==================
The effective tax rate was 30.9% in the current quarter, compared with 34.5% in
the prior year's quarter and 29.3% in the full fiscal year 2002. The decrease
from the prior years first quarter was principally due to lower foreign and
state taxes. In addition, the absence of nondeductible goodwill amortization
related to the adoption of SFAS No. 142 reduced the effective tax rate for the
quarter.
In the first quarter, the Company adopted SFAS No. 142, which eliminates the
amortization of goodwill and indefinite lived intangible assets. The after-tax
impact of SFAS No. 142 was $2.0 million, or 3 cents per diluted share for the
quarter.
SEGMENT RESULTS
Professional/Trade
U.S. Professional/Trade revenues of $70.2 million for the first quarter advanced
78% over the comparable prior year period, and the direct contribution to profit
advanced 97% to $14.3 million. The increase was principally attributable to
Hungry Minds, which was acquired in the second quarter of the prior year. All
areas of the Professional/Trade business performed well, particularly consumer,
culinary, reference, and travel, led by the Company's For Dummies, Webster's New
World, Betty Crocker, and Frommer's brands. The direct contribution margin
increased to 20.4% from 18.5% in the prior year principally due to product mix.
The travel program continued its strong recovery from the post-September 11th
slowdown. A redesigned frommers.com site, launched in June, handled record
traffic and book sales in July. During the quarter, England For Dummies won a
Lowell Thomas Award, considered by many to be the most prestigious award in
travel publishing.
Sales of the teacher education titles that Wiley acquired in late May from
Prentice Hall-Direct/Pearson Education exceeded the Company's expectations. The
combination of these titles with Wiley's strong education list, sold under the
Jossey-Bass brand, has created a formidable presence for the Company in this
category.
While the business book marketplace is struggling to regain momentum, Wiley's
program fared well in the quarter with several best-selling frontlist titles,
including Prechter/Conquer the Crash: You Can Survive and Prosper in a
Deflationary Depression (a Wiley Europe title); Weiss/Ultimate Safe Money Guide;
Byron/Martha Inc.; and Lencioni/Five Dysfunctions of A Team: A Leadership Fable.
During the quarter, Wiley published the first book in the marketplace on the
demise of Enron, Fusaro and Miller/What Went Wrong at Enron. In August, the
Company licensed its BoldIdeas online business journal collection to ProQuest's
ABI/INFORM(R) database for distribution to educational institutions, libraries,
and other markets worldwide.
Wiley's technology publishing continued to improve its competitive position. The
bright spots were in the consumer technology areas, including digital
photography, digital imaging software, general PC technology, Windows XP, home
networking, and eBay-related books. During the quarter, the Company signed a
licensing agreement with Gemini Industries USA to extend its For Dummies brand
into a new range of computer, home electronics, telephone, and gaming consumer
technology products. In addition, a co-marketing/co-branding agreement was
executed with Seybold Seminars and Publications for Wiley's Complete Course
series.
Scientific, Technical And Medical (STM)
U.S. STM revenues of $42.5 million increased 6% over the prior year driven by
the strong performance of the journals program (including a substantial
subscription order from China), the positive effect of both new and renewed
Wiley InterScience licenses, the renewal of publishing agreements for two
society journals, and new products. The direct contribution to profit increased
13% to $20.3 from $17.9 million due to the same effects. The direct contribution
margin improved to 47.9% in the current quarter compared with 44.7% in the prior
year, as a result of improved journal margins.
Wiley InterScience continued to evolve as a global enterprise with its growth
reflecting the research community's need for quality content, when and where
they want it. Over the past year, the online service experienced a significant
increase in the number of journal articles viewed with 73% growth from the prior
year's quarter. Approximately 60% of Global STM journals are now licensed under
Wiley InterScience. Several licenses were signed, including Takeda Chemical
Industries and Sankyo Pharmaceutical in Japan; the Helmholtz Institute and the
Max Planck Institute in Germany; and the University of Queensland in Australia.
The growth in usage also reflects the value to customers of linking agreements
with third party providers. The reference links between Wiley InterScience and
the American Chemical Society's Chemport went live during the quarter, enhancing
efficiencies in the research process for chemists worldwide.
By the end of the quarter, OnlineBooks offered customers nearly 300 titles. In
the May 1, 2002 issue of Library Journal, Ed Sugrue of the Harvard University
Libraries described OnlineBooks as, "An extremely user-friendly, highly
effective means of organizing what until now has been exclusively print material
.. . . The service as a whole is excellent; unreservedly recommended for
academic, large public and scientific research libraries."
During the quarter, Wiley successfully launched the online edition of Current
Protocols in Bioinformatics. The editors are Dr. Dan Davison (Bristol-Myers
Squibb) and Dr. Andy Baxevanis, a bioinformatics expert based at the National
Institutes of Health, and co-founder of the new International Genomics
Consortium.
The Company continued to build its society journal publishing business with the
renewal of the agreement with the American Association of Clinical Anatomists
and the British Association of Clinical Anatomists to publish their
jointly-owned journal, Clinical Anatomy, as well as the renewal of the
affiliation agreement with the Academy for Eating Disorders to publish
International Journal of Eating Disorders. The American Peptide Society has
adopted the Wiley journal, Biopolymers - Peptide Science, as its official
journal.
Higher Education
U.S. Higher Education revenues of $44.9 million increased 6% for the quarter
from the prior year. The direct contribution to profit increased 6% to $18.2
million. Fueling this increase were sales of new editions of key titles
including Tortora/Principles of Anatomy and Physiology; Hughes-Hallett/Calculus;
Musser/Math for Teachers; and Weygandt/Financial Accounting; as well as the
titles acquired from Thomson Learning in November of last year.
The acquisition of Fitzgerald Publishing Co., a small Company specializing in
the life sciences, was completed during the first quarter. The acquisition
brings to Wiley a microbiology textbook by Abigail Salyers, a prominent
microbiologist at the University of Illinois-Urbana and president of the
American Society of Microbiology. Also notable are two new titles that will be
published by Wiley's STM group: a revision of a successful Brain Atlas by
Hanaway, Woolsey et al, and a new book on Evolutionary Psychology by Rossano,
Hanaway, Woolsey et al.
During the quarter, an initiative was launched to offer access to STM's online
Encyclopedia for Electrical and Electronic Engineering to students who purchase
selected Higher Education textbooks in electrical engineering. This program will
provide motivation to students and faculty to adopt and purchase Wiley
textbooks, as well as enhance the visibility of the online encyclopedia.
Europe
European segment revenues of $47.9 million advanced 27% over the prior year's
first quarter. The revenue growth was driven by the success of its
Prechter/Conquer the Crash title; good results by journals, STM books, and
Higher Education programs; and better-than-expected results from recent
acquisitions. Two key titles, both authored by senior engineers at top telecom
corporations, Tachikawa/W-CDMA and Holma/W-CDMA for UMTS, published successfully
during the quarter. The direct contribution to profit of $16.0 million was 20%
over the prior year. The direct contribution margin was 33.5% in the current
period compared with 35.4% in the prior year mainly due to product mix.
We made progress in building Wiley's society journal publishing business in
Europe, with the signing of an agreement with The International Society for
Ultrasound in Obstetrics and Gynecology to publish Ultrasound in Obstetrics and
Gynecology, as well as the Associazone Elettrotecnica Italiana to publish
European Transactions in Telecommunications. In July, Wiley Europe published the
first issue of Pharmaceutical Statistics in collaboration with the Association
of Statisticians in the Pharmaceutical Industry.
Wiley's operations in Weinheim, Germany were relocated to new offices at the
beginning of the quarter, and its operations in Chichester, United Kingdom were
relocated to a new building in late August.
Other Segment
The other segment revenues advanced 31% for the quarter. In Asia, we achieved
good results in Singapore, Hong Kong, India, and China. Singapore and Hong Kong
appear to be recovering from the weak market conditions that prevailed
throughout most of the previous year. Book sales in China continue to grow.
Throughout Asia, Wiley's subscription and translation rights businesses
continued to perform impressively. Our translation rights business in China
continued to grow at a rapid pace with 85 titles signed in the first quarter,
double the number of titles signed during the same period last year. Wiley
Australia successfully launched Voila, its new high school French program, in
July.
Shared Services and Administrative Costs
Shared services and administrative costs increased $10.7 million to $39.2
million over the prior years first quarter mainly due to Hungry Minds and other
acquisitions and the impact of foreign currency exchange rates.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used $7.6 million of cash, or $22.1 million less than the
prior year's comparable period. The increase was primarily due to higher non
cash expenditures for author royalty advances earned, improved trade receivable
collections, and increased accounts payable from relocation expenditures. The
use of cash during this period is consistent with the seasonality of the journal
subscription business and the educational segment's receipt cycle that occurs,
for the most part, later in the fiscal year.
Investing activities used $42.5 million during the current quarter, or $26.4
million more than the comparable prior year period. Investing activities in the
current period included the acquisition of titles from Prentice Hall
Direct/Pearson Education for $6.5 million and capital expenditures, amounting to
approximately $23 million, for the purchase of a building in the United Kingdom
and leasehold improvements at the Company's new Hoboken, NJ headquarters.
Current year financing activities primarily reflect the purchase of treasury
shares, dividend payments, and borrowings of $25.0 million from our line of
credit to finance the investing activities.
Although the statement of financial condition indicates a negative working
capital of $49.2 million, current liabilities include $82.1 million of deferred
income related to journal subscriptions for which the cash has been received and
which will be recognized in income as the journals are delivered to customers.
The Company believes its cash balances together with existing credit facilities
are sufficient to meet its obligations. The Company had $290.0 million of
variable rate loans outstanding at July 31, 2002, which approximated fair value.
The Company had $125.0 million available under its revolving credit facilities
at July 31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 instruments and/or insurance contracts
from time to time to reduce fluctuations in earning and cash flows when it is
deemed appropriate to do so. The Company does not use derivative financial
investments for trading or speculative purposes.
Interest Rates
The Company did not use any derivative financial investments to manage this
exposure. The weighted average interest rate as of July 31, 2002 was
approximately 2.61%. A hypothetical 1% change in interest rates for the variable
rate debt would affect annual net income and cash flow by approximately $1.3
million.
Foreign Exchange Rates
The Company is exposed to foreign currency exchange movements primarily in
European, Asian, Canadian and Australian currencies. Consequently, the Company
and its subsidiaries, from time to time, enter into foreign exchange forward
contracts as a hedge against foreign currency asset, liability, commitment, and
anticipated transaction exposures, including intercompany purchases. The Company
does not use derivative financial instruments for trading or speculative
purposes.
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 fiscal 2002 consolidated revenues, the top ten book
customers account for approximately 31% of total fiscal 2002 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 fiscal 2002
consolidated revenues and no one agent accounts for more than 7% of total fiscal
2002 consolidated revenues. Insurance for these accounts is not commercially
feasible and/or available.
ITEM 4. CONTROLS AND PROCEDURES
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. Accordingly, no corrective actions were required or
undertaken.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 - 18 U.S.C. Section 1350 Certificate by Company Officers
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended July 31,
2002.
"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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
JOHN WILEY & SONS, INC.
Registrant
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/ Edward J. Melando
-----------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: September 16, 2002
CERTIFICATIONS
I, William J. Pesce, certify that:
- - I have reviewed this quarterly report on Form 10-Q of John Wiley & Sons,
Inc.;
- - Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
- - Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
By /s/ William J. Pesce
-----------------------
William J. Pesce
President and
Chief Executive Officer
Dated: September 16, 2002
I, Ellis E. Cousens, certify that
- - I have reviewed this quarterly report on Form 10-Q of John Wiley & Sons,
Inc.;
- - Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
- - Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
By /s/ Ellis E. Cousens
-----------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
Dated: September 16, 2002
Exhibit 99.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of John Wiley & Sons, Inc. (the
"Company") on Form 10-Q for the period ending July 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"),
I, William J. Pesce, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15
(d) of the Securities Exchange Act of 1934 (as amended), as
applicable; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/William J. Pesce
William J. Pesce
President and
Chief Executive Officer
September 16, 2002
In connection with the Quarterly Report of John Wiley & Sons, Inc. (the
"Company") on Form 10-Q for the period ending July 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"),
I, Ellis E. Cousens, Executive Vice President and Chief Financial &
Operations Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or 15
(d) of the Securities Exchange Act of 1934 (as amended), as
applicable; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/Ellis E. Cousens
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
September 16, 2002