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 January 31, 2004 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 January 31, 2004 were:
Class A, par value $1.00 - 50,735,247
Class B, par value $1.00 - 11,307,164
This is the first page of a 28-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 January 31, 2004 and 2003, and April 30, 2003...............................3
Condensed Consolidated Statements of Income - Unaudited
for the Three and Nine Months ended January 31, 2004 and 2003.....................4
Condensed Consolidated Statements of Cash Flows - Unaudited
for the Nine Months ended January 31, 2004 and 2003...............................5
Notes to Unaudited Condensed Consolidated Financial Statements....................5-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................13-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................21-22
Item 4. Controls and Procedures.............................................................23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................23
SIGNATURES AND CERTIFICATIONS...............................................................24-26
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)
January 31, April 30,
------------------------------------ ----------------
Assets 2004 2003 2003
---------------- --------------- ----------------
Current Assets
Cash and cash equivalents $ 93,051 31,941 $ 33,241
Accounts receivable 153,818 135,816 110,038
Taxes receivable 345 4,238 9,657
Inventories 81,288 80,545 83,337
Deferred income tax benefits 25,971 33,331 26,028
Prepaid expenses 9,408 10,566 11,524
---------------- --------------- ----------------
Total Current Assets 363,881 296,437 273,825
Product Development Assets 60,115 62,107 60,842
Property and Equipment 119,313 109,756 114,870
Intangible Assets 280,714 280,142 280,872
Goodwill 195,705 193,392 192,186
Deferred Income Tax Benefits 3,552 11,410 2,800
Other Assets 22,259 20,459 20,558
---------------- --------------- ----------------
Total Assets $ 1,045,539 973,703 $ 945,953
================ =============== ================
Liabilities & Shareholders' Equity
Current Liabilities
Current portion of long-term debt and notes payable $ - 35,000 $ 35,000
Accounts and royalties payable 100,397 99,106 71,296
Deferred subscription revenue 138,170 126,642 121,373
Accrued income taxes 20,120 21,753 7,953
Accrued pension liability 12,780 1,788 8,271
Other accrued liabilities 58,918 62,395 69,353
---------------- --------------- ----------------
Total Current Liabilities 330,385 346,684 313,246
Long-Term Debt 200,000 200,000 200,000
Accrued Pension Liability 51,444 31,488 54,909
Other Long-Term Liabilities 30,631 28,503 28,190
Deferred Income Taxes 6,085 15,004 5,604
Shareholders' Equity
Class A & Class B common stock 83,191 83,191 83,191
Additional paid-in-capital 42,340 30,976 34,103
Retained earnings 435,635 363,753 368,963
Accumulated other comprehensive income (loss) 4,443 7,386 (7,171)
Unearned deferred compensation (1,814) (1,444) (1,283)
Treasury stock (136,801) (131,838) (133,799)
---------------- --------------- ----------------
Total Shareholders' Equity 426,994 352,024 344,004
---------------- --------------- ----------------
Total Liabilities & Shareholders' Equity $ 1,045,539 973,703 $ 945,953
================ =============== ================
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands except per share information)
Three Months Nine Months
Ended January 31, Ended January 31,
------------------------------------- -----------------------------------
2004 2003 2004 2003
----------------- ---------------- ---------------- ----------------
Revenue $ 242,357 221,196 $ 690,897 650,641
Costs and Expenses
Cost of sales 81,979 72,674 232,270 218,646
Operating and administrative expenses 114,011 109,122 337,350 318,860
Amortization of intangibles 2,517 2,548 7,382 7,259
Unusual Item - Relocation related expenses - - - 2,465
----------------- ---------------- ---------------- ----------------
Total Costs and Expenses 198,507 184,344 577,002 547,230
----------------- ---------------- ---------------- ----------------
Operating Income 43,850 36,852 113,895 103,411
Interest Income and Other - Net 58 713 873 1,234
Interest Expense (1,278) (2,086) (3,965) (6,468)
----------------- ---------------- ---------------- ----------------
Income Before Taxes 42,630 35,479 110,803 98,177
Provision For Income Taxes 11,286 11,259 32,011 19,196
----------------- ---------------- ---------------- ----------------
Net Income $ 31,344 24,220 $ 78,792 78,981
================= ================ ================ ================
Income Per Share
Diluted $ 0.50 0.39 $ 1.25 1.25
Basic $ 0.51 0.39 $ 1.27 1.28
Cash Dividends Per Share
Class A Common $ 0.07 0.05 $ 0.20 0.15
Class B Common $ 0.07 0.05 $ 0.20 0.15
Average Shares
Diluted 63,086 62,575 63,069 63,202
Basic 61,823 61,447 61,800 61,505
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 Nine Months
Ended January 31,
-----------------------------------
2004 2003
------------------ ----------------
Operating Activities
Net income $ 78,792 78,981
Adjustments to reconcile net income to cash provided
by (used for) operating activities
Amortization of intangibles 7,382 7,259
Amortization of composition costs 23,386 22,019
Depreciation of property and equipment 21,072 17,903
Change in deferred income taxes 1,221 (10,474)
Non-cash charges & other 44,331 38,380
Change in deferred subscription revenue 12,146 2,413
Net change in operating assets and liabilities (14,345) (18,207)
------------------ ----------------
Cash Provided by Operating Activities 173,985 138,274
------------------ ----------------
Investing Activities
Additions to product development assets (41,366) (36,452)
Additions to property and equipment (20,852) (51,476)
Acquisition of publishing assets (3,066) (7,835)
------------------ ----------------
Cash Used for Investing Activities (65,284) (95,763)
------------------ ----------------
Financing Activities
Repayment of debt (35,000) (30,000)
Purchase of treasury stock (7,013) (10,380)
Cash dividends (12,126) (9,259)
Proceeds from exercise of stock options 4,012 1,990
------------------ ----------------
Cash Used for Financing Activities (50,127) (47,649)
------------------ ----------------
Effects of Exchange Rate Changes on Cash 1,236 (2,626)
------------------ ----------------
Cash and Cash Equivalents
Increase (Decrease) for Period 59,810 (7,764)
Balance at Beginning of Period 33,241 39,705
------------------ ----------------
Balance at End of Period $ 93,051 31,941
================== ================
Supplemental Information
Businesses Acquired:
Fair value of assets acquired $ 3,066 7,865
Liabilities assumed - (30)
------------------ ----------------
Cash Paid for Businesses Acquired $ 3,066 7,835
================== ================
Cash Paid (Refunded) During the Period for:
Interest $ 3,544 9,689
Income taxes - Net $ 10,776 (1,194)
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 necessary to
present fairly the consolidated financial position of John Wiley & Sons,
Inc., and Subsidiaries (the "Company") as of January 31, 2004 and 2003, and
results of operations and cash flows for the three month and nine month
periods ended January 31, 2004 and 2003. The results for the three months
and nine months ended January 31, 2004 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.
Certain prior-year amounts have been reclassified to conform to the current
year's presentation. Subscriber receivables for January 31, 2004, January
31, 2003 and April 30, 2003 of $24.6 million, $21.9 million and $10.0
million, respectively, are netted against Deferred Subscription Revenue in
the Condensed Consolidated Statements of Financial Position to reflect
deferred subscription revenue only for subscriptions where cash has been
received.
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.
Pro forma information under SFAS No. 123 and SFAS No. 148
---------------------------------------------------------
The per share value of options granted in connection with the Company's
stock option plans during the following periods are estimated using the
Black Scholes option pricing model with the following weighted average
assumptions:
For the Three and Nine Months
Ending January 31,
-------------------------------
2004 2003
------------- -------------
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%
Per share fair value of options granted $8.97 $11.09
For purposes of the following pro forma disclosure, the fair value of the
awards was estimated at the date of grant using the Black Scholes
option-pricing model and amortized to expense over the expected life of the
options.
For the Three Months Ending For the Nine Months Ending
January 31, January 31,
-------------------------------- -------------------------------
2004 2003 2004 2003
------------- -------------- ------------ --------------
Net income as reported $31,344 24,220 $78,792 78,981
Stock-based compensation, net of tax,
included in the determination of net
income as reported -
Restricted stock plans 511 455 1,461 940
Director stock plan 16 26 31 (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 (1,643) (1,445) (4,861) (3,805)
------------- -------------- ------------ --------------
Pro forma net income $30,228 23,256 $75,423 76,090
============= ============== ============ ==============
Reported earnings per share
Diluted $0.50 0.39 $1.25 1.25
Basic $0.51 0.39 $1.27 1.28
Pro forma earnings per share
Diluted $0.48 0.37 $1.20 1.20
Basic $0.49 0.38 $1.22 1.24
2. Comprehensive Income
--------------------
Comprehensive income was as follows (in thousands):
For the Three Months Ending For the Nine Months Ending
January 31, January 31,
-------------------------------- -------------------------------
2004 2003 2004 2003
------------- -------------- ------------ --------------
Net income $31,344 24,220 78,792 78,981
Change in other comprehensive income
(loss), net of taxes:
Derivative cash flow hedges
Realized gain(loss) 121 - 215 -
Unrealized gain(loss) (31) - (402) 168
Foreign currency translation
adjustments 3,338 6,834 11,801 9,923
------------- -------------- ------------ --------------
Comprehensive income $34,772 31,054 $90,406 89,072
============= ============== ============ ==============
A reconciliation of accumulated other comprehensive gain (loss) follows (in
thousands):
Three Months Ended January 31, 2004
------------------------------------------------------
Beginning Change for Ending
Balance Period Balance
------------- --------------- --------------
Derivative cash flow hedges, net of tax $(277) 90 (187)
Foreign currency translation adjustment 18,597 3,338 21,935
Minimum pension liability, net of tax (17,305) - (17,305)
------------- --------------- --------------
Total $1,015 3,428 4,443
============= =============== ==============
Nine Months Ended January 31, 2004
-------------------------------------------------------
Beginning Change for Ending
Balance Period Balance
------------- --------------- --------------
Derivative cash flow hedges, net of tax $0 (187) (187)
Foreign currency translation adjustment 10,134 11,801 21,935
Minimum pension liability, net of tax (17,305) - (17,305)
------------- --------------- --------------
Total $(7,171) 11,614 4,443
============= =============== ==============
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 For the Nine Months Ending
January 31, January 31,
-------------------------------- -------------------------------
------------- --------------
2004 2003 2004 2003
------------- -------------- ------------ --------------
Weighted average shares outstanding 62,104 61,656 62,057 61,682
Less: Unearned deferred compensation
shares (281) (209) (257) (177)
------------- -------------- ------------ --------------
Shares used for basic income per 61,823 61,447 61,800 61,505
share
Dilutive effect of stock options and
other stock awards 1,263 1,128 1,269 1,697
------------- -------------- ------------ --------------
Shares used for diluted income per 63,086 62,575 63,069 63,202
share ============= ============== ============ ==============
For the three and nine months ended January 31, 2003 and 2002, options to
purchase shares of Class A common stock of zero and 2.1 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 January 31, As of
April 30,
----------------------------------- ---------------
2004 2003 2003
--------------- -------------- ---------------
Finished goods $73,635 71,345 $76,452
Work-in-process 5,711 6,927 5,643
Paper, cloth and other 5,797 6,186 4,798
--------------- -------------- ---------------
85,143 84,458 86,893
LIFO reserve (3,855) (3,913) (3,556)
--------------- -------------- ---------------
Total inventories $81,288 80,545 $83,337
=============== ============== ===============
5. Acquisitions
------------
The Company invested $3.1 million in acquisitions during the current nine
month period including payments to complete prior year acquisitions, the
purchase of publishing rights to higher education titles and publishing
rights to several STM journals.
In the first nine months 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 December 2003, the Financial Accounting Standards Board (FASB) revised
interpretation No. 46 Consolidation of Variable Interest Entities (Fin
46R), an Interpretation of ARB No. 51. Public companies must apply the
revised interpretation immediately to entities created after January 31,
2003, no later than the end of the first reporting period that ends after
December 15, 2003 and no later than the first reporting period that ends
after March 15, 2004 for all other entities. Fin 46 did not have 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 was effective August 1, 2003 and did not have an 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 January 31,
----------------------------------------------------------------------------------
2004 2003
----------------------------------------- -------------------------------------
(thousands)
External Inter- External Inter-
Customers segment Sales Total Customers segment Sales Total
------------- -------------- ------------ ------------ ----------- ------------
Revenue
-------
U.S. segments:
Professional/Trade $75,522 9,085 84,607 $72,809 8,999 81,808
Scientific, Technical, and Medical 40,468 2,016 42,484 37,486 2,194 39,680
Higher Education 40,415 6,407 46,822 37,222 6,383 43,605
European segment 54,189 4,676 58,865 46,075 3,719 49,794
Asia, Australia & Canada 31,763 513 32,276 27,604 255 27,859
Eliminations - (22,697) (22,697) - (21,550) (21,550)
------------- -------------- ------------ ------------ ----------- ------------
Total revenue $242,357 - 242,357 $221,196 - 221,196
------------- -------------- ------------ ------------ ----------- ------------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $23,372 $24,220
Scientific, Technical, and Medical 19,633 17,188
Higher Education 17,835 15,318
European segment 18,078 14,996
Asia, Australia & Canada 10,420 7,063
------------ ------------
Total direct contribution to profit 89,338 78,785
Shared services and administrative
costs
Distribution (11,578) (11,651)
Information technology (12,259) (10,898)
Finance (6,480) (6,799)
Other administration (15,171) (12,585)
------------ ------------
Total shared services and administration (45,488) (41,933)
costs ------------ ------------
Operating income 43,850 36,852
Interest expense and other - net (1,220) (1,373)
------------ ------------
Income before taxes $42,630 $35,479
============ ============
Nine Months Ended January 31,
----------------------------------------------------------------------------------
2004 2003
----------------------------------------- -------------------------------------
(thousands)
External Inter- External Inter-
Customers segment Sales Total Customers segment Sales Total
------------- -------------- ------------ ------------ ----------- ------------
Revenue
-------
U.S. segments:
Professional/Trade $222,210 25,072 247,282 $216,712 24,936 241,648
Scientific, Technical, and Medical 121,519 5,366 126,885 118,463 6,090 124,553
Higher Education 110,134 22,130 132,264 104,223 20,872 125,095
European segment 157,363 12,103 169,466 140,913 11,850 152,763
Asia, Australia & Canada 79,671 1,078 80,749 70,330 624 70,954
Eliminations - (65,749) (65,749) - (64,372) (64,372)
------------- -------------- ------------ ------------ ----------- ------------
Total revenue $690,897 - 690,897 $650,641 - 650,641
------------- -------------- ------------ ------------ ----------- ------------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $66,942 $66,004
Scientific, Technical, and Medical 60,852 57,905
Higher Education 46,454 42,101
European segment 52,730 48,071
Asia, Australia & Canada 20,043 14,725
------------ ------------
Total direct contribution to profit 247,021 228,806
Shared services and administrative
costs
Distribution (34,430) (34,115)
Information technology (36,488) (30,085)
Finance (20,720) (20,910)
Other administration (41,488) (37,820)
------------ ------------
Total shared services and administration (133,126) (122,930)
costs
Unusual item - relocation expenses - (2,465)
------------ ------------
Operating income 113,895 103,411
Interest expense and other - net (3,092) (5,234)
------------ ------------
Income before taxes $110,803 $98,177
============ ============
8. Intangible Assets
-----------------
Intangible Assets consist of the following (in thousands):
As of
As of January 31, April 30,
----------------------------------- ---------------
2004 2003 2003
---------------- -------------- ---------------
Intangible assets not subject to amortization
Branded trade marks $57,900 57,900 $57,900
Acquired publication rights 117,900 113,337 115,585
---------------- -------------- ---------------
Total intangible assets not subject to amortization 175,800 171,237 173,485
---------------- -------------- ---------------
Net, intangible assets subject to amortization,
principally acquired publication rights 104,914 108,905 107,387
---------------- -------------- ---------------
Total $280,714 280,142 $280,872
================ ============== ===============
The Company evaluated its goodwill and indefinite life intangible assets in
accordance with SFAS No. 142 during the third quarter of fiscal year 2004.
No impairment reserve was required.
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. Several derivative foreign exchange contracts settled
during the second and third quarters resulting in an exchange loss of
approximately $0.2 million, which will be recognized in cost of sales as
the inventory is sold. The remaining contracts expire through April 2004.
During the nine months ending January 31, 2004 there was no material
ineffectiveness related to the cash flow hedges, and the estimated amount
of gains or losses expected to be recognized 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
--------------- -------------------- --------------- --------------
Canadian dollar US $ US$4,000,000 1.4163
10. Special Items
-------------
The Company completed the relocation of its headquarters to Hoboken, N.J.
in the first quarter of fiscal year 2003. A 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.
During the second quarter of fiscal year 2003, the Company completed the
merger of several of its European subsidiaries into a new entity, which
enabled the Company to increase the tax-deductible net asset basis of the
merged subsidiaries to fair market value creating a tax asset greater than
the related book value. The increase in tax basis resulted in a $12.0
million tax benefit, equal to $0.19 per diluted share, which was reported
as a deferred tax asset.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -
THIRD QUARTER ENDED JANUARY 31, 2004
Revenue for the third quarter increased 10% to $242.4 million from $221.2
million in the prior year driven by Scientific, Technical and Medical
journals, Professional/Trade books, Higher Education textbooks and
educational materials, and foreign exchange translation benefits. Revenue
for the quarter increased 5% excluding foreign exchange translation gains.
Earnings per diluted share of $0.50 and net income of $31.3 million for the
third quarter of fiscal year 2004 increased over the previous year's
results by 28% and 29%, respectively, reflecting the positive effects of
operations, a foreign exchange benefit, the favorable resolution of certain
state and federal tax matters, and an adjustment to accrued foreign taxes.
Excluding the net tax benefit of $3.0 million, or $0.05 per diluted share,
reported in the current quarter, earnings per diluted share of $0.45 and
net income of $28.3 million for the third quarter increased 16% and 17%,
respectively.
Gross profit as a percentage of revenue declined during the quarter to
66.2% from 67.1% in the prior year's quarter, principally due to higher
provisions for inventory and author advances, and a change in product mix.
Operating and administrative expenses for the third quarter were
essentially flat with the prior year, excluding the negative effect of
foreign currency translation. Third quarter operating income of $43.9
million increased 19%, or 13% excluding foreign exchange from $36.9 million
in the prior year's third quarter.
Taxes
-----
The Company's effective tax rates for the third quarter of fiscal 2004 and
2003 were 26.5% and 31.7%, respectively. Excluding the net tax benefits
described above, the effective tax rate for the third quarter of fiscal
year 2004 was 33.6% compared to 31.7% for the third quarter of fiscal year
2003, reflecting an increase in the proportion of earnings from
higher-taxed jurisdictions.
In January 2002, the World Trade Organization ruled that the Extra
Territorial Income exclusion ("ETI", formerly the Foreign Sales
Corporation) was an export subsidy inconsistent with U.S. obligations under
international trade agreements. The ETI provides a tax benefit to Wiley and
other U.S. corporations by excluding from taxable income certain foreign
trading income. Currently, there are two bills proposed to the U.S.
Congress which repeal the ETI tax benefit and replace it with an
alternative tax benefit available to all U.S. manufacturers. As noted in
the Company's fiscal year 2003 annual report filed with the SEC on form
10K, the ETI tax benefit to the Company, improved the effective tax rate by
2%. At the filing of the 10Q the proposed bills have not yet been acted
upon by Congress.
SEGMENT RESULTS
Professional/Trade (P/T)
------------------------
U.S. P/T revenue of $84.6 million for the third quarter improved 3% over
the comparable prior year period with the business, architecture, culinary,
education, and consumer programs exhibiting strength throughout the holiday
season. The direct contribution margin declined from 29.6% to 27.6%
principally due to product mix, higher provisions for author advances, and
additional costs associated with selling P/T products in the higher
education market.
P/T's business program rebounded nicely in a slowly improving market,
building momentum throughout the quarter with solid performances from a
wide range of titles. Several Wiley business titles appeared on major
bestseller lists, including J.K. Lasser's Income Tax 2004; Bonner/Financial
Reckoning Day (#1 on The New York Times Hardcover Business Bestseller List
in December); Scheinfeld and Allen/The 11th Element; Lencioni/Five
Dysfunctions of a Team; George/Authentic Leadership (on The Economist "Best
Books of 2003" list); Gitomer/The Sales Bible; and Kouzes and Posner/The
Leadership Challenge.
Notable recent publications include How to Make Money in Stocks Desk Diary
2004 by Investors Business Daily founder William O'Neil; a new version of
the widely acclaimed training and assessment tool, Leadership Practices
Inventory Online; and four titles from Wiley's relationship with
Morningstar, the renowned provider of stock and mutual fund news and
analyses: The Morningstar Guide to Mutual Funds: 5-Star Strategies for
Success; The Five Rules for Successful Stock Investing: Morningstar's Guide
to Building Wealth and Winning in the Market; Morningstar Funds 500: 2004;
and Morningstar Stocks 500: 2004.
In December, the Company signed an agreement with Mergent, Inc. (formerly
Moody's financial services division) to publish Mergent's Dividend
Achievers, Handbook of Common Stocks, and Handbook of NASDAQ Stocks.
Although market conditions continue to be challenging, Wiley's computer
books program gained momentum during the quarter. Key titles that published
recently include Collier/eBay For Dummies; LeVitus/Mac OS Panther For
Dummies, and MaranGraphics/Teach Yourself VISUALLY(TM) Mac OS Panther
v.10.3.
Frommer's, Wiley's market-leading travel program, experienced significant
reordering by major U.S. accounts and strong sales of European travel
titles. Frommers.com hit a record high of 16 million page views in January.
The Company's CliffsNotes and For Dummies lines and the culinary category
also exhibited strength.
P/T capitalized on the success of The Lord of the Rings by promoting The
Origins of Tolkien's Middle-earth For Dummies at movie theaters in targeted
cities. In addition, P/T benefited from the publication of its new
biography, Ravina/The Last Samurai, which coincided with the release of the
movie with the same title. Alan Dershowitz's, The Case for Israel, reached
the top of The New York Times Expanded Hardcover Bestseller list. All the
Shah's Men by Stephen Kinzer was the History selection on The Economist
"Best Books of 2003" list.
An unprecedented number of the Company's cookbooks were honored in holiday
round-ups of the best cookbooks of 2003, notably Wolfert/Slow Mediterranean
Kitchen; Delouvrier/Mastering Simplicity; and Revsin/Come for Dinner. The
paperback edition of Eades/30 Day Low Carb Diet Solution released
successfully during the quarter, as did the third edition of National
Restaurant Association Educational Foundation's flagship books on food
sanitation, ServSafe. Civitello/Cuisine and Culture was awarded the
Gourmand World Cookbook Award and was also named as one of the top three
culinary books by Sante magazine.
At the Association of American Publishers - Professional and Scholarly
Publishing Annual Awards program, McGowan and Kruse/Interior Graphic
Standards won the Architecture & Urban Studies category and Weiner/Handbook
of Psychology won the Multi-Volume Reference/Humanities category.
Scientific, Technical And Medical (STM)
---------------------------------------
U.S. STM revenue increased 7% to $42.5 million from $39.7 million in prior
year's third quarter mainly due to new society journals (such as Hepatology
and Liver Transplantation), the Polymer Backfile Collection, ArticleSelect,
and online books in electronics and electrical engineering. The third
quarter direct contribution margin improved to 46.2% from 43.3% compared to
the prior year's third quarter principally due to cost savings and the sale
of higher margin products. Globally, STM journal revenue increased
approximately 13% in the quarter.
The Wiley InterScience annual license renewal process is well underway and
proceeding as anticipated. Several new licenses were also signed, including
the Universidad Nacional Autonoma de Mexico, Alerta al Conociemeiento
Consortium in Chile, University of South Florida, University of Kansas,
University of Tampa, Procter & Gamble, BUGALICIA (Galician Academic
Consortium), University of Innsbruck, Halle University, Technical
University of Berlin, Korea Institute of Science & Technology, and the
National Defense University in Taiwan.
Wiley's STM digital access business, which utilizes the Wiley InterScience
platform, continued to add content and functionality for customers to meet
their information needs. Wiley InterScience customer usage statistics are
compliant with COUNTER (Continuing Online Usage of Networked Electronic
Resources--www.projectcounter.org), an international initiative designed to
serve librarians, publishers, and information intermediaries by
facilitating the recording and exchange of online usage statistics. By
adopting this new industry standard, Wiley InterScience will enable
customers to make direct comparison between the usage of its journals and
those of other publishers.
Wiley InterScience extended its Pay Per View and Article Select options to
include access to its extensive range of online reference works. Previously
available only for access to online books and journal content, these
services allow librarians, scientists, and other researchers to obtain
individual articles and chapters from publications for which they do not
hold subscriptions. Providing a wide range of access options is part of the
Company's strategy to offer customers greater flexibility and choice.
Wiley continues to extend its publishing services to learned societies and
their members by forming new partnerships with numerous prominent national,
regional, and international societies. The Company formed a publishing
partnership with the Society of Plastics Engineers (SPE) to provide all
publishing services for its technical journals -Polymer Engineering &
Science, Polymer Composites, and Journal of Vinyl & Additive Technology.
During the quarter, the Company also renewed its agreement with the Society
for Bioelectromagnetics to publish its journal Bioelectromagnetics.
Although the STM book market continues to be soft, there were some bright
spots. Sales of online major reference works and OnlineBooks were strong.
Early in the fourth quarter, Wiley signed an agreement to distribute
Merck's four professional manuals in the U.S. - The Merck Manual, The Merck
Veterinary Manual, The Merck Manual of Geriatrics, and The Merck Index.
Widely considered to be among the most trusted resources for medical and
scientific information, these highly regarded titles will be excellent
additions to Wiley's comprehensive offerings.
At the Association of American Publishers - Professional and Scholarly
Publishing Annual Awards program, four STM publications were recognized,
including the Potter and Colman/Handbook of Weather, Climate, and Water
(Geology and Earth Science category); Huurdeman/The Worldwide History of
Telecommunications (History of Science category); Horvath/Encyclopedia of
Catalysis (Multi-Volume Reference/Sciences category); and Organic Synthesis
(Electronic Product/Science category).
In January, the Wiley Foundation announced that the third annual Wiley
Prize in the Biomedical Sciences was awarded to C. David Allis, Ph.D., the
newly appointed Professor, Laboratory of Chromatin Biology and Epigenetics
at the Rockefeller University in New York. Dr. Allis was recognized for his
significant discovery on gene activity. His work has already led to
advances in the treatment of leukemia.
Higher Education
----------------
Third quarter U.S. Higher Education revenue of $46.8 million increased 7%
as compared to the prior year's third quarter. Programs in business, the
sciences and social sciences drove these results while engineering math and
computer science continue to exhibit little or no growth. The third quarter
direct contribution margin was 38.1% compared to 35.1% in the prior year's
third quarter due to lower unit costs, cost containment, product mix and
the benefits of selling P/T products through the Higher Education sales
force.
Top selling titles during the quarter included Tortora/Anatomy and
Physiology; Kieso/Intermediate Accounting; Weygandt/Principles of Financial
Accounting; Solomons/Organic Chemistry; Huffman/Psychology; DeBlij/Regions
and Halliday/Fundamentals of Physics, which published its 7th edition
during the quarter.
During the quarter, Wiley signed a strategically important contract with
Paul M. Romer of Stanford University's Graduate School of Business. Dr.
Romer is one of the nation's leading economists and a primary developer of
New Growth Theory, a body of work that provides a fresh foundation for
thinking about wealth creation. He was the recipient of Stanford's
Distinguished Teaching Award in 1999. He will author a new textbook in
intermediate macroeconomics that will serve as a catalyst for growth in
Higher Education's economics program. As important as the textbook
agreement, Wiley also signed an agreement with Aplia, the educational
software company that Dr. Romer founded. Aplia uses Web technology to
create educational tools for students that will afford them the opportunity
to increase productivity and success. Intermediate Macroeconomics will be
the first Wiley offering to be integrated with Aplia courseware.
At the end of the quarter, Higher Education announced a collaboration
agreement with the Society of Manufacturing Engineers (SME), a leading
professional society supporting manufacturing education, to develop content
that brings real world manufacturing into the academic classroom. Through
this exclusive agreement, Wiley and SME have adapted material from the
highly acclaimed SME Fundamental Manufacturing Processes video series and
are distributing it on DVD with Wiley engineering texts.
Europe
------
Third quarter revenue for Wiley's European operations of $58.9 million was
up 18% over prior year, or 9% excluding foreign currency translation gains.
Strong performance from Wiley's worldwide journals continued to mitigate
the combined effect of the sluggish book and advertising markets. The
direct contribution to profit of $18.1 million was 21% above the prior
year, or 19% excluding the impact of foreign exchange, principally due to
favorable product mix and cost savings. Contribution margin improved 0.6%
over the prior year's third quarter to 30.7% from 30.1%.
Despite of the impact of the Rowecom bankruptcy, Wiley Europe's STM
journals program exhibited strong growth throughout Europe. Wiley-VCH
reported solid performances from Angewandte Chemie, Helvetica Chimica Acta,
the Macro journals and the Advanced Materials and Advanced Functional
Materials journals. In addition, journal revenue began to benefit from the
contribution of new businesses such as the Cochrane Library database, the
British Journal of Surgery, and the journal of Ultrasound in Obstetrics and
Gynecology.
In addition to the aforementioned new Wiley InterScience licenses, during
the quarter Wiley Europe signed major Enhanced Access Licenses, with the UK
Academic Consortium, an Italian Consortium and the Friedrich-Althoff
Konsortium in Germany.
Building on the success of the release of The Polymer Backfile Collection,
Wiley Europe released the Angewandte Chemie Backfile Collection late in the
third quarter. The early market response is very encouraging.
The STM and P/T book programs showed good performance against prior year,
driven primarily by improvements in the U.K., Benelux, Eastern Europe, and
Greece and through online booksellers. The For Dummies list in the U.K. got
off to a good start with the successful release of British History For
Dummies and CVs For Dummies. England's success as Rugby World Cup winner
fueled sales of Rugby For Dummies. For Dummies titles developed in the
U.S., especially consumer technology titles such as Windows XP For Dummies,
Internet For Dummies, and PC For Dummies, also sold well.
Wiley Europe experienced a pick up in sales of STM books, with the release
of such titles as Alberts/Moleckularbiologie der Zelle and Brown/
Encyclopedia of Optics, as well as a number of major reference works,
including Schreiber and Harvard/Handbook of Clinical Biology and Handbook
of RNA Biochemistry. The third quarter saw a number of key adoptions of
higher education learning materials in the UK and continental Europe.
Tortora/Anatomy and Physiology was the top-selling title in these regions
during this period.
During the quarter, The British Journal of Surgery added the Swiss Surgical
Society to the growing number of European societies with which it is
affiliated, further strengthening its position as the premier surgical
journal throughout Europe. Wiley acquired European Transactions in
Electrical Power, a bimonthly primary research journal published in
collaboration with several European societies. Journal. Four psychology
titles won British Medical Association awards: Stallard/Think Good, Feel
Good, Graham/Substance Misuse in Psychosis, Ballard/Understanding Menopause
and McMurran/Motivating Offenders to Change.
Asia, Australia & Canada
------------------------
Wiley's revenue in Asia, Australia and Canada advanced 16% in the third
quarter. Excluding the benefit of foreign currency, revenue was essentially
flat for the quarter. Contribution margin increased to 32.3% from 25.4% in
the prior year. Solid indigenous publishing results in Australia were
offset by a soft holiday season for P/T in Canada and a weak retail market
in Asia.
Several important Wiley InterScience licenses were signed in India during
the quarter. Wiley Asia formed an alliance with Citibank to develop
personal finance books for Asia. The first title, Growing Your Money, will
publish next year with Citibank already committed to purchase a substantial
number of copies. Revenue from Wiley Asia's translation business continued
to grow at a rapid rate.
In Australia, tertiary (higher education), school, and P/T performed well
during the third quarter. In November, Wiley Australia again won Tertiary
Publisher of the Year, a prestigious award given by the Australian Campus
Booksellers Association each year for excellence in customer service,
distribution, sales representation, product and marketing initiatives and
trade terms. Wiley has won this award consistently during the past several
years. In addition, Wiley Australia was awarded the Employer of Choice
citation for the third consecutive year.
Wiley Canada's performance during the quarter was somewhat disappointing,
as growth in higher education could not compensate for slow P/T sales.
There was good news in the quarter, however, including robust sales of
Dreyden/The Game, 20th Anniversary Edition and solid backlist sales of
business and international titles.
Shared Services and Administrative Costs
----------------------------------------
Shared services and administrative costs increased 8% to $45.5 million or
5% excluding the impact of foreign exchange for the third quarter mainly
due to higher depreciation from technology investments to support the
Company's ongoing migration to digital products and distribution.
NINE MONTHS ENDED JANUARY 31, 2004
Revenue for the nine months of fiscal year 2004 increased 6%, or 3%
excluding foreign currency translation gains. Net income and earnings per
diluted share for the nine-month period of fiscal year 2004 and 2003 were
$79 million and $1.25, respectively. Earnings per diluted share and net
income for the nine-month period increased 11% excluding charges reported
in the prior year related to the Company's relocation to Hoboken, New
Jersey and certain tax benefits in fiscal year 2004 and 2003. Operating
income increased 10% to $113.9 million, or 7% excluding the impact of
foreign exchange. Operating and administrative expenses increased 6% over
last year's period, or 2% excluding the negative effect of foreign currency
translation. The increase was primarily due to higher depreciation on
technology investment associated with the transition of certain aspects of
the business from print to electronic delivery, higher pension costs and
higher sales volume.
During the third quarter of fiscal year 2004, the Company recognized net
tax benefits of $3.0 million, or $0.05 per diluted share, related to the
resolution of certain state and federal tax matters as well as an
adjustment to accrued foreign taxes. Excluding these items earnings per
diluted share was $1.20 through the first nine months of the fiscal year.
The decrease of $2.1 million in interest expense from the prior year period
is a result of lower average outstanding debt and interest rates.
Special Items
-------------
In the first quarter of fiscal year 2003, the Company completed the
relocation of its headquarters to Hoboken, N.J. A 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 year's first
quarter.
During the second quarter of fiscal year 2003, the Company completed the
merger of several of its European subsidiaries into a new entity, which
enabled the Company to increase the tax-deductible net asset basis of the
merged subsidiaries to fair market value creating a tax asset greater than
the related book value. The increase in tax basis resulted in a $12.0
million tax benefit, equal to $0.19 per diluted share, which was reported
as a deferred tax asset.
Management believes the non-GAAP financial measures, which exclude the
relocation charge and the tax benefit, provide a meaningful comparison of
the Company's year-over-year results. These measures improve investors'
ability to understand the Company's performance and future expectations. As
required by the SEC, the Company provides the below reconciliation to the
most directly reported amounts under GAAP. Pro forma results of operations
for the nine months, excluding the relocation charges and tax benefits,
were as follows:
For the Nine Months Ending January
31,
-------------------------------------
2004 2003
----------------- -----------------
Operating income as reported $ 113,895 103,411
Relocation charge - 2,465
----------------- -----------------
Pro forma operating income $ 113,895 105,876
================= =================
Net income as reported $ 78,792 78,981
Relocation charge, net of taxes - 1,479
Tax benefits - (12,025)
----------------- -----------------
Pro forma net income $ 78,792 68,435
================= =================
Income per diluted share as reported $ 1.25 1.25
Relocation charge, net of taxes - 0.02
Tax benefits - (0.19)
Pro forma income per diluted share $ 1.25 1.08
================= =================
Taxes
-----
The effective tax rates reported for the first nine months of fiscal year
2004 and 2003 were 28.9% and 19.6%, respectively. Excluding the net tax
benefits in fiscal year 2004 and 2003 described above, the effective tax
rates for the first nine months of fiscal year 2004 and 2003 were 31.6% and
31.8%, respectively.
SEGMENT RESULTS
Professional/Trade (P/T)
------------------------
U.S. P/T revenue for the first nine months of fiscal year 2004 of $247.3
million increased 2% from $241.6 million, reflecting growth in business,
and culinary and architecture sales, partially offset by lower backlist
sales of technology and consumer titles. The contribution margin in the
first nine months of fiscal year 2004 was 27.1% compared to 27.3% in the
prior year reflecting higher provisions for author advances and additional
sales costs associated with selling P/T products in the higher education
outlet.
Scientific, Technical And Medical (STM)
---------------------------------------
U.S. STM revenue for the first nine months of fiscal year 2004 was $126.9
million compared to $124.6 million in the prior year. Higher journal
revenue was partially offset by the adverse effect of the Rowecom
bankruptcy and lower advertising revenue. The contribution margin was 48.0%
for the first nine months of fiscal year 2004 compared to 46.5% in the
prior year reflecting cost savings and higher journal revenue. Globally,
STM journal revenue for the first nine months of fiscal 2004 increased
approximately 8% over the prior year period.
Higher Education
----------------
U.S. Higher Education revenue for the first nine months of fiscal year 2004
of $132.3 million increased 6% from $125.1 million due to higher science,
social science and business sales. The contribution margin increased 1.4%
to 35.1% from 33.7% for the first nine months of fiscal year 2004
reflecting cost savings, lower unit cost product mix and the benefits of
selling P/T products through the Higher Education sales force.
Europe
------
European revenue of $169.5 million in the first nine months of fiscal year
2004 increased 11% over the prior year, or 3% excluding the foreign
exchange translation benefit. STM journal improvement was partially offset
by sluggish STM and P/T book sales, primarily in the U.K. For the first
nine months of fiscal year 2004, the contribution margin excluding foreign
exchange improved 1.3% to 32.8% from 31.5% from the prior year reflecting
higher journal revenue and cost savings. Including foreign exchange, the
contribution margin decreased to 31.1%.
Asia, Australia & Canada
------------------------
Asia, Australia and Canada revenue increased 14% to $80.7 million for the
first nine months of fiscal year 2004, or 1% excluding foreign exchange
translation gains. Excluding foreign exchange translation gains, the
contribution margin was 19.8% compared to 20.7% in the prior year for the
first nine months of fiscal year 2004 reflecting a soft P/T market in
Canada. Including foreign exchange, the contribution margin increased 4.0%
to 24.8% from 20.7%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities for the first nine months of fiscal
year 2004 improved to $174.0 million, as compared to $138.3 million in the
prior fiscal year period. Higher cash earnings and higher prepaid
subscriptions associated with the company's STM journal business was
partially offset by lower accounts payable due to timing.
Investing activities used $65.3 million for the first nine months of fiscal
year 2004 as compared to $95.8 million in the prior year period. Current
year investing activities include $41.4 million for product development and
$20.9 million of property and equipment expenditures, the majority of which
was for investments in technology. Prior year capital spending included
approximately $31.6 million of cost for the relocation of the Company's
headquarters and new facilities. 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.
Financing activities in the nine month periods of fiscal year 2004 and 2003
include scheduled term loan repayments of $35 million and $30 million. In
the first quarter, 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 Condensed Statement of Financial Position as of January 31,
2003 indicates working capital of $33.5 million, current liabilities
includes deferred income related to journal subscriptions for which a
significant portion of the cash has been received and 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 January 31, 2004 the Company had $200.0 million
of variable rate loans outstanding, which approximated fair value and $120
million available under its revolving credit facilities.
"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 January 31, 2004 was
approximately 2.0%. A hypothetical 1% change in interest rates on the
Company's debt would affect annual net income and cash flow by
approximately $1.2 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. Several derivative foreign exchange contracts settled
during the second and third quarters resulting in a loss of approximately
$0.2 million, which will be recognized in cost of sales as the inventory is
sold. The remaining contracts expire through April 2004. During the period
ending January 31, 2003 there was no material ineffectiveness related to
the cash flow hedges, and the estimated amount of gains or losses 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
-------------- ------------------- ---------------- ----------------
Canadian dollar US $ US$4,000,000 1.4163
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 affected STM journal revenue in
calendar year 2003 and was 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.
ii. Earnings release on the second quarter fiscal 2004 results
issued on form 8-K dated December 1, 2003, which include the
condensed financial statements of the Company.
iii. Earnings release on the third quarter fiscal 2004 results
issued on form 8-K dated March 1, 2004, 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
By /s/ Edward J. Melando
-----------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: March 12, 2004
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: March 12, 2004
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: March 12, 2004
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 January 31, 2004 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: March 12, 2004
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 January 31, 2004 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: March 12, 2004