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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, 2003 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, 2003 were:
Class A, par value $1.00 - 50,622,320
Class B, par value $1.00 - 11,550,364
This is the first page of a 23-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, 2003 and 2002, and April 30, 2003...........................................3
Condensed Consolidated Statements of Income - Unaudited
for the Three months ended July 31, 2003 and 2002..........................................4
Condensed Consolidated Statements of Cash Flows - Unaudited
for the Three Months ended July 31, 2003 and 2002......................................... 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.............................................................18
SIGNATURES AND CERTIFICATIONS........................................................................19-21
EXHIBITS
99.1 - 18 U.S.C. Section 1350 Certificate by the President and Chief
Executive Officer
99.2 - 18 U.S.C. Section 1350 Certificate by the Chief Financial and
Operations Officer
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
July 31, April 30,
------------------------------------ ----------------
Assets 2003 2002 2003
---------------- --------------- ----------------
Current Assets
Cash and cash equivalents $ 8,085 9,850 $ 33,241
Accounts receivable 134,802 130,653 120,057
Taxes receivable 3,610 7,926 9,657
Inventories 83,210 80,051 83,337
Deferred income tax benefits 25,870 33,622 26,028
Prepaid expenses 10,346 9,111 11,524
---------------- --------------- ----------------
Total Current Assets 265,923 271,213 283,844
Product Development Assets 61,397 57,388 60,842
Property and Equipment 114,599 95,827 114,870
Intangible Assets 280,105 281,310 280,872
Goodwill 193,354 190,501 192,186
Deferred Income Tax Benefits 2,543 1,794 2,800
Other Assets 21,021 20,064 20,558
---------------- --------------- ----------------
Total Assets $ 938,942 918,097 955,972
================ =============== ================
Liabilities & Shareholders' Equity
Current Liabilities
Current portion of long-term debt and notes payable $ 45,000 55,000 $ 35,000
Accounts and royalties payable 79,110 103,264 71,296
Deferred subscription revenue 84,198 82,097 131,392
Accrued income taxes 12,198 13,652 7,953
Other accrued liabilities 56,675 66,434 77,624
---------------- --------------- ----------------
Total Current Liabilities 277,181 320,447 323,265
Long-Term Debt 200,000 235,000 200,000
Accrued Pension Liability 54,865 28,373 54,909
Other Long-Term Liabilities 28,183 22,760 28,190
Deferred Income Taxes 5,847 14,572 5,604
Shareholders' Equity 372,866 296,945 344,004
---------------- --------------- ----------------
Total Liabilities & Shareholders' Equity $ 938,942 918,097 $ 955,972
================ =============== ================
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,
------------------------------------
2003 2002
----------------- ----------------
Revenue $ 219,660 206,437
Costs and Expenses
Cost of sales 72,109 68,721
Operating and administrative expenses 112,043 102,367
Amortization of intangibles 2,330 2,176
Unusual Item - Relocation related expenses - 2,465
----------------- ----------------
Total Costs and Expenses 186,482 175,729
----------------- ----------------
Operating Income 33,178 30,708
Interest Income and Other - Net 95 293
Interest Expense (1,355) (2,030)
Income Before Taxes 31,918 28,971
Provision For Income Taxes 10,118 8,941
----------------- ----------------
Net Income $ 21,800 20,030
================= ================
Income Per Share
Diluted $ 0.35 0.32
Basic $ 0.35 0.32
Cash Dividends Per Share
Class A Common $ 0.07 0.05
Class B Common $ 0.07 0.05
Average Shares
Diluted 62,964 63,573
Basic 61,686 61,658
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)
For The Three Months
Ended July 31,
---------------------------------------
2003 2002
------------------ ----------------
Operating Activities
Net income $ 21,800 20,030
Adjustments to reconcile net income to cash provided
by operating activities
Amortization of intangibles 2,330 2,176
Amortization of composition costs 7,511 7,113
Depreciation of property and equipment 7,083 4,219
Other non-cash items 14,437 18,207
Change in deferred subscription revenue (49,089) (44,742)
Net change in working capital and other (18,886) (14,605)
------------------ ----------------
Cash Use For Operating Activities (14,814) (7,602)
------------------ ----------------
Investing Activities
Additions to product development assets (12,885) (9,181)
Additions to property and equipment (5,633) (25,510)
Acquisition of publishing assets (1,006) (7,812)
------------------ ----------------
Cash Used for Investing Activities (19,524) (42,503)
------------------ ----------------
Financing Activities
Borrowings of short-term debt 10,000 25,000
Purchase of treasury shares - (3,531)
Cash dividends (4,035) (3,094)
Proceeds from exercise of stock options 2,633 1,125
------------------ ----------------
Cash Provided By Financing Activities 8,598 19,500
------------------ ----------------
Effects of Exchange Rate Changes on Cash 584 750
------------------ ----------------
Cash and Cash Equivalents
Decrease for Period (25,156) (29,855)
Balance at Beginning of Period 33,241 39,705
------------------ ----------------
Balance at End of Period $ 8,085 9,850
================== ================
Supplemental Information
Businesses Acquired:
Fair value of assets acquired $ 1,006 7,842
Liabilities assumed - (30)
------------------ ----------------
Cash Paid for Businesses Acquired $ 1,006 7,812
================== ================
Cash Paid (Refunded) During the Period for:
Interest $ 4,084 5,394
Income taxes - Net $ (4,134) (6,594)
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
consolidated financial position of John Wiley & Sons, Inc., and
Subsidiaries (the "Company") as of July 31, 2003 and 2002, and results of
operations and cash flows for the three month period ended July 31, 2003
and 2002. The results for the three months ended July 31, 2003 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, 2003.
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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
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," as amended by SFAS No. 148,"
Accounting for Stock Based Compensation - Transition and Disclosure."
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.
The fair value of the awards was estimated at the date of grant using the
Black Scholes option-pricing model.
The per share value of options granted in connection with the Company's
stock option plans has been estimated with the following weighted average
assumptions:
For the Three Months Ending
July 31,
---------------------------------------
2003 2002
----------------- ----------------
Expected life of options (years) 8.1 8.0
Risk-free interest rate 2.9% 4.9%
Volatility 30.7% 34.3%
Dividend yield 1.0% 0.8%
Fair value $8.97 $11.09
For purposes of the following pro forma disclosure, the estimated fair
value of the options is amortized to expense over the options' vesting
periods. The Company's pro forma information under SFAS No. 123 and SFAS
No. 148 was as follows:
For the Three Months Ending July 31,
---------------------------------------
2003 2002
----------------- ----------------
Net income as reported $21,800 20,030
Stock-based compensation, net of tax, included in the
determination of net income as reported -
Restricted stock plans 521 126
Director stock plan 28 26
Stock-based compensation costs, net of tax, that would have been
included in the determination of net income had the fair
value-based method been applied (1,681) (1,116)
----------------- ----------------
Pro forma net income $20,668 19,066
================= ================
Reported earnings per share
Diluted $0.35 0.32
Basic $0.35 0.32
Pro forma earnings per share
Diluted $0.33 0.30
Basic $0.34 0.31
2. Comprehensive Income
Comprehensive income was as follows (in thousands):
For the Three Months Ending July 31,
--------------------------------------
2003 2002
---------------- ----------------
Net income $21,800 20,030
Other comprehensive income (loss), net of taxes,
period change in -
Derivative cash flow hedges (29) 168
Foreign currency translation adjustments 1,855 2,836
---------------- ----------------
Comprehensive income $23,626 23,034
================ ================
A reconciliation of accumulated other comprehensive gain (loss) follows
(in thousands):
Three Months Ended July 31, 2003
----------------------------------------------------
Beginning Change for Ending
Balance Period Balance
------------ -------------- --------------
Derivative cash flow hedges, net of tax $0 (29) (29)
Foreign currency translation adjustment 10,134 1,855 11,989
Minimum pension liability, net of tax (17,305) - (17,305)
------------- -------------- --------------
Total $(7,171) 1,826 (5,345)
============= ============== ==============
3. Weighted Average Shares for Earning Per Share
A reconciliation of the shares used in the computation of income per
share follows (in thousands):
For the Three Months Ending July 31,
---------------------------------------
2003 2002
----------------- ----------------
Weighted average shares outstanding 61,892 61,822
Less: Unearned deferred compensation shares (206) (164)
---------------- ----------------
Shares used for basic income per share 61,686 61,658
Dilutive effect of stock options and other stock awards 1,278 1,915
---------------- ----------------
Shares used for diluted income per share 62,964 63,573
================= ================
For the three months ended July 31, 2003 and 2002, options to purchase
shares of Class A common stock of zero and .4 million, respectively, have
been excluded from the shares used for diluted income per share as their
inclusion would have been anti-dilutive.
4. Inventories
Inventories were as follows (in thousands):
As of
As of July 31, April 30,
----------------------------------- ---------------
2003 2002 2003
--------------- -------------- ---------------
Finished goods $75,620 69,105 $76,452
Work-in-process 5,650 7,710 5,643
Paper, cloth and other 5,597 6,949 4,798
------------- ------------- ---------------
86,867 83,764 86,893
LIFO reserve (3,657) (3,713) (3,556)
--------------- ------------- ---------------
Total inventories $83,210 80,051 $83,337
=============== ============= ===============
5. Acquisitions
In the current year's first quarter the Company made two additional
payments aggregating $1.0 million to complete prior year 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.
6. Recent Accounting Standards
In January 2003, The Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN
46). FIN 46 will be effective in the second quarter of fiscal 2004 and is
not expected to have a material impact on the Company's financial position
or results of operations.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 149 amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS 133. The amendments set forth in SFAS 149 require
that contracts with comparable characteristics be accounted for similarly.
SFAS 149 is generally effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The guidance is to be applied prospectively. SFAS 149 did not have a
material impact on the Company's financial position or results of
operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
The statement requires that certain financial instruments be classified as
liabilities, instead of equity, in statements of financial position. SFAS
150 did not have a material impact on the Company's financial position or
results of operations.
7. 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:
Three Months Ended July 31,
------------------------------------------------------------------------------
2003 2002
----------------------------------------- ----------------------------------
(thousands)
External Inter- External Inter-
Customers segment Sales Total Customers segment Sales Total
------------- -------------- ------------ ----------- ------------- --------
Revenue
-------
U.S. segments:
Professional/Trade $69,450 6,694 76,144 63,397 6,784 70,181
Scientific, Technical, and Medical 40,114 1,593 41,707 40,638 1,819 42,457
Higher Education 40,133 7,635 47,768 38,047 6,868 44,915
European segment 46,864 3,719 50,583 43,432 4,460 47,892
Asia, Australia & Canada 23,099 297 23,396 20,923 237 21,160
Eliminations - (19,938) (19,938) - (20,168) (20,168)
------------- -------------- ------------ ------------ ----------- ---------
Total revenue $219,660 - 219,660 206,437 - 206,437
------------- -------------- ------------ ------------ ----------- ---------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $18,188 14,292
Scientific, Technical, and Medical 20,716 20,317
Higher Education 18,684 18,158
European segment 15,422 16,036
Asia, Australia & Canada 4,143 3,612
------------ ---------
Total direct contribution to profit 77,153 72,415
Shared services and administrative
costs
Distribution (11,261) (11,054)
Information technology (11,801) (8,522)
Finance (7,051) (7,367)
Other administration (13,862) (12,299)
------------ ---------
Total shared services and administration (43,975) (39,242)
costs
Unusual item - relocation expenses - (2,465)
------------ ---------
Operating income 33,178 30,708
Interest expense and other - net (1,260) (1,737)
------------ ---------
Income before taxes $31,918 28,971
============ =========
8. Intangible Assets
Intangible Assets consist of the following (in thousands):
As of
As of July 31, April 30,
----------------------------------- ---------------
2003 2002 2003
---------------- -------------- ---------------
Intangible assets not subject to amortization
Branded trade marks $57,900 57,900 $57,900
Acquired publication rights 116,433 107,532 115,585
---------------- -------------- ---------------
Total intangible assets not subject to amortization 174,333 165,432 173,485
---------------- -------------- ---------------
Intangible assets subject to amortization
Acquired publication rights 105,225 115,524 106,790
Noncompete agreements 547 354 597
---------------- -------------- ---------------
Total intangible assets subject to amortization 105,772 115,878 107,387
---------------- -------------- ---------------
Total $280,105 281,310 $280,872
================ ============== ===============
9. Derivative Financial Instruments
Under certain circumstances, the Company enters into derivative financial
instruments in the form of forward contracts as a hedge against foreign
currency fluctuation of specific transactions, including inter-company
purchases. The Company does not use derivative financial instruments for
trading or speculative purposes.
During the first quarter of fiscal year 2004 the Company entered into
forward contracts to hedge potential foreign currency volatility on a
portion of fiscal year 2004 inventory purchases. The contracts have been
designated as cash flow hedges and are considered by management to be
highly effective. All contracts were outstanding as of July 31, 2003 and
expire through April 2004. During the period ending July 31, 2003 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 current fiscal year are not material. The
outstanding contracts are as follows:
Currency Average
Currency Sold Purchased Notional Value Contract Rate
------------------------- ------------------------- ------------------- ---------------
Australian dollar Singapore $ S$600,000 0.89
Canadian dollar US $ US$8,500,000 1.4123
10. Relocation Charge
The Company completed the relocation of its headquarters to Hoboken, N.J.
in the first quarter of fiscal year 2003. An unusual charge for costs
associated with the relocation of $2.5 million, or $1.5 million after tax
equal to $0.02 per diluted share was reported. Management believes the
non-GAAP financial measures, which exclude the relocation charge, provide a
more meaningful comparison of the Company's year-over-year results. This
event is unusual to the Company and unlikely to recur in the foreseeable
future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -
FIRST QUARTER ENDED JULY 31, 2003
Revenue for the first quarter of fiscal year 2004 of $219.7 million increased
6%, from $206.4 million in the prior year's quarter. Excluding foreign exchange
translation gains, revenue increased 4%. The first quarter revenue increase was
driven primarily by growth in the U.S. Professional/Trade and Higher Education
segments.
First quarter net income advanced to $21.8 million from $20.0 million, while
earnings per share increased to $0.35 from $0.32. Excluding an unusual charge
related to the Company's relocation to Hoboken, New Jersey, net income and EPS
in last year's first quarter were $21.5 million and $0.34, respectively.
Gross profit as a percentage of revenue improved during the quarter to 67.2%
from 66.7% in the prior year's quarter, principally due to favorable product
mix, improved trade returns and improved worldwide journal sales.
First quarter operating income of $33.2 million increased 8% from $30.7 million
in the prior year's first quarter. Excluding relocation expenses incurred in the
prior year's first quarter, operating income was flat year-on-year.
The Company completed the relocation of its headquarters to Hoboken, N.J. in the
first quarter of fiscal year 2003. An unusual charge for costs associated with
the relocation of $2.5 million, or $1.5 million after-tax, equal to $0.02 per
diluted share was reported in last years first quarter. Management believes the
non-GAAP financial measures, which exclude the relocation charge, provide a more
meaningful comparison of the Company's year-over-year results. This event is
unusual to the Company and unlikely to recur in the foreseeable future. Pro
forma results of operations for the first quarter excluding the unusual
relocation charges were as follows:
Three Months Ended July 31,
---------------------------------------
2003 2002
----------------- ----------------
(thousands)
Operating income as reported $33,178 30,708
Unusual relocation charge - 2,465
----------------- ----------------
Operating income before unusual charge $33,178 33,173
================= ================
Net Income as reported $21,800 20,030
Unusual relocation charge, net of taxes - 1,479
----------------- ----------------
Net income before unusual charge $21,800 21,509
================= ================
Income per diluted share as reported $0.35 0.32
Unusual relocation charge, net of taxes - 0.02
Income per diluted share before unusual charge $0.35 0.34
Operating and administrative expenses, excluding the relocation charge,
increased 9% over last year's first quarter. Excluding the combined effects of
foreign currency and expenses associated with a small web development company
acquired in the second quarter of the last fiscal year, the increase was 5%. The
increase was primarily due to higher depreciation on new facilities and
technology costs associated with the transition of certain aspects of the
business from print to electronic delivery.
SEGMENT RESULTS
Professional/Trade (P/T)
U.S. P/T revenue of $76.1 million for the first quarter advanced 8% over the
comparable prior year period. The increase reflects the strength of its
publishing, marketing and sales programs, as well as improvement in sales
returns. P/T continued to gain market share in its major segments during the
quarter. The direct contribution margin improved from 20.4% to 23.9% principally
due to continued improvement in sales return experience, favorable product mix
and licensing revenue.
Wiley's technology program had a successful first quarter, a significant
accomplishment given the continuing softness in this market segment. Consumer
areas continue to perform well, including digital photography, digital imaging,
Photoshop, general PC technology, Windows XP, and home networking. The
professional segment continues to be soft.
Wiley's business program exhibited strength amidst challenging market
conditions, reflecting healthy backlist sales in leadership, real estate,
high-level finance, and accounting. Seven Wiley business titles appeared on
major bestseller lists, including Five Dysfunctions of a Team: A Leadership
Fable; Home Buying For Dummies; Iron Triangle; Yes, You Can Time the Market;
Martha, Inc.; The Ernst & Young Tax Guide 2003; and JK Lasser's Your Income Tax
2003.
Noteworthy titles that were published during the quarter include Modern
Investment by Bob Litterman of Goldman Sachs and Rich in America by Jeffrey
Maurer, the CEO of US Trust. Bookselling For Dummies, which was produced with
the American Booksellers Association as the official guide for the annual Book
Expo in May, was distributed to all independent booksellers in the U.S.
All the Shah's Men: An American Coup and the Roots of Middle East Terror, a
high-profile current events title by Stephen Kinzer, was published to great
critical acclaim during the first quarter. Top-selling cookbooks during the
quarter were Betty Crocker's Cookie Book, Betty Crocker's Cookbook Bridal
Edition, and Weight Watchers New Complete Cookbook. Webster's New World foreign
language dictionaries also sold well. MTV's reality show, Real World, featured
seven Americans working on a travel guide for Wiley's Frommer's series.
Scientific, Technical And Medical (STM)
U.S. STM revenue of $41.7 million decreased 2% from the prior year due to
continued sluggish book sales and the impact of the Rowecom bankruptcy on
calendar year 2003 journal revenue. Direct contribution margin improved 1.8% to
49.7% reflecting favorable product mix and lower costs.
Global STM journal revenue performed well, even including the unfavorable effect
of the Rowecom bankruptcy, increasing 4% over the prior year. Total global STM
revenue increased approximately 3% over the prior year reflecting higher journal
revenue partially offset by lower STM book revenue.
Wiley InterScience, the Company's online service, experienced significant growth
with the number of full-text accesses increasing over 40% from prior year. More
than 60% of global journal subscription revenue is generated by Wiley
InterScience licenses. Several new licenses were signed during the first
quarter. Two institutions, Nanjing University and Northeastern University joined
the China Academic Libraries Information System (CALIS) consortium agreement.
The CALIS agreement, which is Wiley's first Enhanced Access License in China,
has already resulted in a dramatic increase in the number of visits to Wiley
InterScience from users in China. New licenses were also signed with Kings
College London, the United Arab Emirates University, and the University of New
Mexico.
A number of new database products were made available online during the quarter,
including the Organic Synthesis Database, the Database of Polymer Properties and
AntiBase 2003. Wiley's Current Protocols program has enjoyed a strong start to
the year, reflecting the performance of CP Bioinformatics and new CP Online
licenses.
Higher Education
First quarter U.S. Higher Education revenue of $47.8 million increased 6% as
compared to the prior year's first quarter. Revenue growth was principally in
the life sciences due to a strong front list, as well as solid performances of
the physical sciences and social sciences programs. Industry-wide conditions in
engineering continue to be weak. The first quarter direct contribution margin
was 39.1% compared to 40.4% in the prior year's first quarter.
Globally Higher Education revenue increased approximately 8% for the quarter.
During the quarter, Higher Education benefited from the performance of recent
revisions including Kieso/Intermediate Accounting 11e; Huffman/Psychology 7e;
Davison/Abnormal Psychology 9e; Cutnell/Physics 6e; Kimmel/Financial Accounting
3e; and Tortora /Principles of Anatomy and Physiology 10e.
Wiley is leveraging its investments in technology to help teachers teach and
students learn. During the quarter, eGrade Plus was launched for Physics 6e, the
first product built using Wiley's new technology platform, known as Edugen. This
platform enables Wiley to deliver integrated content that is organized around
teaching and learning activities.
Higher Education formed a publishing partnership with Editorial Espasa Calpe, a
subsidiary of Grupo Planeta, one of the largest Spanish language publishers in
the world. Wiley and Espasa will co-develop a textbook and related material for
the first-year undergraduate Spanish course. This innovative program will
provide students with multimedia access to a comprehensive set of tools that
will assist them with pronunciation, vocabulary, and grammar. The program will
help students immerse themselves in the language and culture of the Hispanic
world through high-quality video segments from a professional television series.
Europe
First quarter revenue from Wiley's European operations of $50.6 million was up
6% over prior year, but down 3% excluding the effect of foreign currency
translation gains. Strong journal performance from Wiley-VCH in Germany was more
than offset by weak book sales in the UK. Strength in journals came from the
European Journal of Organic Chemistry, the Numerical Methods in Engineering
journal, the European Journal of Inorganic Chemistry, and a group of five
polymer publications. In addition, Angewandte Chemie, one of the leading
international chemistry research journals, performed well. The direct
contribution to profit of $15.4 million was 4% below the prior year, or down 1%
excluding the impact of foreign exchange.
In May, Wiley launched a website it developed for the European Peptide Society
(www.eurpepsoc.com), as well as new revenue-generating features (advertorials
and HTML email newsletters) for two communities of interest portals,
spectroscopyNOW.com and separationsNOW.com.
Wiley Europe renewed its contract with The Pathological Society of Great Britain
and Northern Ireland to publish the Journal of Pathology, as well as with the
Biometrical Society to publish the Biometrical Journal. The Company also renewed
its license with the UK National Electronic Health Library, which provides
online access to the Cochrane Systematic Reviews in the UK. Wiley formed a
partnership with The Cochrane Collaboration in March to publish these online
databases, which are widely regarded as the world's most authoritative source of
information on the effectiveness of health care interventions. In addition to
enhancing Wiley's medical publishing program with the addition of prestigious
content, the partnership established a major presence for the Company in the
rapidly emerging area of medical informatics.
Wiley Europe formed an alliance with IASeminars for accountancy and finance
titles, giving the Company access to their customer base of 50,000 professionals
throughout Europe. In addition, an agreement was concluded with Cyberlibris, to
feature 150 Wiley titles in this European digital library service for business
schools and corporate institutional training centers.
Asia, Australia & Canada
First quarter revenue in Asia, Australia, and Canada increased 11%, or 2%
excluding the effect of foreign currency translation gains. Strong Higher
Education sales, driven principally by market share gains in Canada, were
tempered somewhat by soft revenue in Australia. Despite the lingering effect of
the SARS outbreak, Asia reported growth in the first quarter, reflecting
continued gains in China and India.
The Dollar Crisis, by financial analyst Richard Duncan, received extensive
global publicity that propelled it to the #17 bestseller on Amazon.com. A Wiley
Australia Wrightbooks title, From 0 to 130 Properties in 3.5 Years, by Steve
McKnight, published during the quarter to great acclaim.
For the seventh time in eight years, Wiley Australia won Secondary Publisher of
the Year at the Awards for Excellence in Educational Publishing conference. Two
Higher Education titles received awards: Jones/Investments: Analysis and
Management won best adaptation and Davidson/Management: An Australian
Perspective 2e won best teaching and learning package.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the first quarter of fiscal year 2004 used $14.8
million of cash, as compared to $7.6 million in the prior period primarily due
to the accrual of relocation costs in the prior year period partially offset by
improved cash collections and an income tax refund.
Investing activities used $19.5 million for the first quarter of fiscal year
2004 as compared to $42.5 million in the prior year period. Investing activities
in the first quarter include $12.9 million for product development and $5.6
million of property and equipment expenditures the majority of which was for
investments in technology. Capital spending on product development for the full
fiscal year 2004 is projected to be $60 million. Capital spending for property
and equipment is projected to be approximately $35 million.
The first quarter's financing activities primarily reflect short-term debt
borrowings of $10 million, dividend payments and proceeds from the exercise of
stock options. The Company announced a 30% increase in its quarterly dividend to
shareholders from $0.05 per share to $0.065 per share in response to the recent
change in tax laws affecting the taxability of dividends. The increased dividend
was effective on July 17, 2003.
Although the statement of financial condition as of July 31, 2003 indicates a
negative working capital of $11.3 million, current liabilities include $84.2
million of deferred income related to journal subscriptions for which the cash
has been received and which will be recognized in revenue as the journals are
delivered to customers. The Company believes its cash balances together with
existing credit facilities are sufficient to meet its obligations. At July 31,
2003 the Company had $245.0 million of variable rate loans outstanding, which
approximated fair value and $140.0 million available under its revolving credit
facilities. On October 31, 2003, $35 million of the variable rate loans will
become due. The Company intends to utilize existing cash balances and the
revolving credit facility to satisfy the payment.
"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.
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 earnings 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, 2003 was
approximately 1.68%. A hypothetical 1% change in interest rates for the variable
rate debt would affect annual net income and cash flow by approximately $1.6
million.
Foreign Exchange Rates
Under certain circumstances, the Company enters into derivative financial
instruments in the form of forward contracts as a hedge against foreign currency
fluctuation of specific transactions, including inter-company purchases. The
Company does not use derivative financial instruments for trading or speculative
purposes.
During the first quarter of fiscal year 2004 the Company entered into derivative
contracts to hedge potential foreign currency volatility on a portion of fiscal
year 2004 inventory purchases. The contracts have been designated as cash flow
hedges and are considered by management to be highly effective. All contracts
were outstanding as of July 31, 2003 and expire through April 2004. During the
period ending July 31, 2003 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 current fiscal year are not material.
The outstanding contracts are as follows:
Average
Currency Sold Currency Purchased Notional Value Contract Rate
-------------------------- ------------------------- --------------------------- -------------------
Australian dollar Singapore $ S$600,000 0.89
Canadian dollar US $ US$8,500,000 1.4123
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 customers
accounted for more than 6% of total fiscal year 2003 consolidated revenue, the
top ten book customers accounted for approximately 26% of total fiscal year 2003
consolidated revenue and approximately 45% of total gross trade accounts
receivable at April 30, 2003. 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 accounted for approximately 16% of total fiscal year 2003
consolidated revenue and no one agent accounted for more than 6% of total fiscal
year 2003 consolidated revenue. Insurance for these accounts is not commercially
feasible and/or available. A journal subscription agent, Rowecom, Inc., filed
for bankruptcy in January 2003. The bankruptcy will affect STM journal revenue
in calendar year 2003 and is expected to be immaterial to the Company.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed or submitted under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified by the Securities and Exchange
Commission's rules and regulations. The Company's Chief Executive Officer and
Chief Financial Officer, together with the Chief Accounting Officer and other
members of the Company's management, have conducted an evaluation of these
disclosure controls and procedures as of a date within 90 days prior to the date
of filing this report. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect such
internal controls subsequent to this evaluation. Accordingly, no corrective
actions were required or undertaken with respect to the internal controls.
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 the President and Chief
Executive Officer
99.2 - 18 U.S.C. Section 1350 Certificate by the Chief Financial and
Operations Officer
(b) The following reports on Form 8-K were furnished to the Securities
and Exchange Commission since the filing of the Company's 10-K on June
30, 2003.
i. Earnings release on the first quarter fiscal 2004 results issued
on form 8-K dated September 3, 2003, which include the condensed
financial statements of the Company.
The following reports on Form 8-K were filed with the Securities and
Exchange Commission since the filing of the Company's 10-K on June 30,
2003.
None
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
/s/ Edward J. Melando
-----------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: September 12, 2003
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 in
order 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.
- - The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) Disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting and
- - The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
By /s/ William J. Pesce
-----------------------
William J. Pesce
President and
Chief Executive Officer
Dated: September 12, 2003
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 in
order 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.
- - The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) Disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting and
- - The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
By /s/ Ellis E. Cousens
-----------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
Dated: September 12, 2003
Exhibit 99.1
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, 2003 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 based on my
knowledge:
(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
Dated: September 12, 2003
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 .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, 2003 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 based on my knowledge:
(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
Dated: September 12, 2003