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, 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 August 31, 2004 were:
Class A, par value $1.00 - 50,245,074
Class B, par value $1.00 - 11,229,164
This is the first page of a 22-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, 2004 and 2003, and April 30, 2004...........................................3
Condensed Consolidated Statements of Income - Unaudited
for the three months ended July 31, 2004 and 2003..........................................4
Condensed Consolidated Statements of Cash Flows - Unaudited
for the three months ended July 31, 2004 and 2003......................................... 5
Notes to Unaudited Condensed Consolidated Financial Statements.............................6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................11-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 16
Item 4. Controls and Procedures......................................................................17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................17
SIGNATURES AND CERTIFICATIONS........................................................................18-22
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,
------------------------------------ ----------------
2004 2003 2004
---------------- --------------- ----------------
Assets
Current Assets
Cash and cash equivalents $ 40,424 8,085 $ 82,027
Accounts receivable 146,168 134,128 127,224
Inventories 81,452 83,210 83,789
Deferred income tax benefits 18,115 27,156 18,113
Prepaid and other 11,973 13,956 12,853
---------------- --------------- ----------------
Total Current Assets 298,132 266,535 324,006
Product Development Assets 58,022 61,397 60,755
Property, Equipment and Technology 115,835 114,599 117,305
Intangible Assets 280,644 280,106 276,440
Goodwill 195,400 193,354 194,893
Deferred Income Tax Benefits 18,352 30,340 18,976
Other Assets 22,808 21,021 22,207
---------------- --------------- ----------------
Total Assets $ 989,193 967,352 $ 1,014,582
================ =============== ================
Liabilities & Shareholders' Equity
Current Liabilities
Current portion of long-term debt and notes payable $ - 45,000 $ -
Accounts and royalties payable 76,325 79,110 68,338
Deferred subscription revenue 90,028 83,524 127,224
Accrued income taxes 29,754 34,877 19,338
Accrued pension liability 5,272 3,301 4,559
Deferred income taxes 5,784 - 5,721
Other accrued liabilities 58,673 53,374 81,185
---------------- --------------- ----------------
Total Current Liabilities 265,836 299,186 306,365
Long-Term Debt 200,000 200,000 200,000
Accrued Pension Liability 50,254 54,865 48,505
Other Long-Term Liabilities 31,258 28,184 31,757
Deferred Income Taxes 12,512 12,251 12,891
Shareholders' Equity
Class A & Class B common stock 83,190 83,190 83,190
Additional paid-in-capital 51,402 41,068 45,887
Retained earnings 456,912 386,736 441,533
Accumulated other comprehensive income (loss) 5,611 (5,346) 2,197
Unearned deferred compensation (3,465) (2,176) (2,134)
Treasury stock (164,317) (130,606) (155,609)
---------------- --------------- ----------------
Total Shareholders' Equity 429,333 372,866 415,064
---------------- --------------- ----------------
Total Liabilities & Shareholders' Equity $ 989,193 967,352 $ 1,014,582
================ =============== ================
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,
------------------------------------
2004 2003
----------------- ----------------
Revenue $ 226,939 $ 219,660
Costs and Expenses
Cost of sales 75,229 72,109
Operating and administrative expenses 118,434 112,043
Amortization of intangibles 2,499 2,330
----------------- ----------------
Total Costs and Expenses 196,162 186,482
----------------- ----------------
Operating Income 30,777 33,178
Interest Expense and Other (1,187) (1,260)
----------------- ----------------
Income Before Taxes 29,590 31,918
Provision For Income Taxes 9,706 10,118
----------------- ----------------
Net Income $ 19,884 $ 21,800
================= ================
Income Per Share
Diluted $ 0.32 $ 0.35
Basic $ 0.32 $ 0.35
Cash Dividends Per Share
Class A Common $ 0.075 $ 0.065
Class B Common $ 0.075 $ 0.065
Average Shares
Diluted 62,851 62,964
Basic 61,442 61,686
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,
-----------------------------------
2004 2003
----------------- ----------------
Operating Activities
---------------------
Net income $ 19,884 $ 21,800
Adjustments to reconcile net income to cash provided by operating
activities
Amortization of intangibles 2,499 2,330
Amortization of composition costs 8,349 7,511
Depreciation of property and equipment 7,487 7,083
Non-cash charges & other 12,263 8,306
Change in deferred subscription revenue (37,528) (36,948)
Net change in operating assets and liabilities (19,279) (24,896)
----------------- ----------------
Cash Used For Operating Activities (6,325) (14,814)
----------------- ----------------
Investing Activities
--------------------
Additions to product development assets (11,709) (12,885)
Additions to property and equipment (5,066) (5,633)
Acquisition of publishing assets (5,709) (1,006)
----------------- ----------------
Cash Used For Investing Activities (22,484) (19,524)
----------------- ----------------
Financing Activities
--------------------
Borrowings of short-term debt - 10,000
Purchase of treasury stock (9,784) -
Cash dividends (4,505) (4,035)
Proceeds from exercise of stock options 1,350 2,633
----------------- ----------------
Cash (Used For) Provided By Financing Activities (12,939) 8,598
----------------- ----------------
Effects of Exchange Rate Changes on Cash 145 584
----------------- ----------------
Cash and Cash Equivalents
Decrease for Period (41,603) (25,156)
Balance at Beginning of Period 82,027 33,241
----------------- ----------------
Balance at End of Period $ 40,424 $ 8,085
================= ================
Supplemental Information
Businesses Acquired:
Fair value of assets acquired $ 5,709 $ 1,006
Liabilities assumed - -
----------------- ----------------
Cash Paid for Businesses Acquired $ 5,709 $ 1,006
================= ================
Cash Paid (Refunded) During the Period for:
Interest $ 1,022 $ 1,308
Income taxes - Net $ (3,515)$ (4,134)
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, 2004 and 2003, and results of
operations and cash flows for the three month period ended July 31, 2004
and 2003. The results for the three months ended July 31, 2004 are not
necessarily indicative of the results 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, 2004.
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.
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 Months Ending
July 31,
---------------------------------------
2004 2003
----------------- ----------------
Expected life of options (years) 8.1 8.1
Risk-free interest rate 4.5% 2.9%
Volatility 23.8% 30.7%
Dividend yield 0.9% 1.0%
Fair value $11.00 $8.97
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 options vesting
periods.
For the Three Months Ending July 31,
---------------------------------------
(in thousands except per share amount) 2004 2003
----------------- ----------------
Net income as reported $19,884 $21,800
Stock-based compensation, net of tax, included in the
determination of net income as reported -
Restricted stock plans 744 521
Director stock plan 14 28
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 (2,112) (1,681)
----------------- ----------------
Pro forma net income $18,530 $20,668
================= ================
Reported earnings per share
Diluted $0.32 $0.35
Basic $0.32 $0.35
Pro forma earnings per share
Diluted $0.29 $0.33
Basic $0.30 $0.34
2. Comprehensive Income
--------------------
Comprehensive income was as follows (in thousands):
For the Three Months Ending July 31,
---------------------------------------
2004 2003
----------------- ----------------
Net income $19,884 $21,800
Change in other comprehensive income (loss), net of taxes:
Derivative cash flow hedges - (29)
Foreign currency translation adjustment 3,414 1,855
----------------- ----------------
Comprehensive income $23,298 $23,626
================= ================
A reconciliation of accumulated other comprehensive gain (loss) follows (in
thousands):
Three Months Ended July 31, 2004
-----------------------------------------------------
Beginning Change for Ending
Balance Period Balance
-------------- -------------- --------------
Foreign currency translation adjustment $18,123 3,414 $21,537
Minimum pension liability, net of tax (15,926) - (15,926)
-------------- -------------- --------------
Total $2,197 3,414 $5,611
============== ============== ==============
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 Ended July 31,
---------------------------------------
2004 2003
----------------- ----------------
Weighted average shares outstanding 61,676 61,892
Less: Unearned deferred compensation shares (234) (206)
----------------- ----------------
Shares used for basic income per share 61,442 61,686
Dilutive effect of stock options and other stock awards 1,409 1,278
----------------- ----------------
Shares used for diluted income per share 62,851 62,964
================= ================
4. Inventories
-----------
Inventories were as follows (in thousands): As of
As of July 31, April 30,
----------------------------------- ---------------
2004 2003 2004
--------------- -------------- ---------------
Finished goods $70,844 $75,620 $74,310
Work-in-process 6,805 5,650 7,582
Paper, cloth and other 6,403 5,597 4,397
--------------- -------------- ---------------
84,052 86,867 86,289
LIFO reserve (2,600) (3,657) (2,500)
--------------- -------------- ---------------
Total inventories $81,452 $83,210 $83,789
=============== ============== ===============
5. Acquisitions
------------
In the first quarter of fiscal year 2005 the Company acquired the Journal
of Microscopy and Analysis, a controlled circulation journal, for
approximately $5.4 million, which is recorded as acquired publication
rights.
6. Recent Accounting Standards
---------------------------
In July 2000 the Emerging Issues Task Force (EITF) issued EITF No. 00-21,
"Accounting for Revenue Relationships with Multiple Deliverables." The EITF
was effective for fiscal years beginning after June 15, 2003. The adoption
of EITF No. 00-21 in the current quarter did not have a material impact on
the Company's consolidated financial statements.
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,
----------------------------------------------------------------------------------
2004 2003
----------------------------------------- -------------------------------------
(thousands)
Inter- Inter-
External segment External segment
Customers Sales Total Customers Sales Total
------------- -------------- ------------ ------------ ----------- ------------
Revenue
-------
U.S. segments:
Professional/Trade $68,331 7,577 75,908 $69,450 6,694 76,144
Scientific, Technical, and Medical 44,466 1,740 46,206 40,114 1,593 41,707
Higher Education 37,468 8,007 45,475 40,133 7,635 47,768
European segment 54,131 5,392 59,523 46,864 3,719 50,583
Asia, Australia & Canada 22,543 923 23,466 23,099 297 23,396
Eliminations - (23,639) (23,639) - (19,938) (19,938)
------------- -------------- ------------ ------------ ----------- ------------
Total revenue $226,939 - 226,939 $219,660 - 219,660
------------- -------------- ------------ ------------ ----------- ------------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $15,551 $18,188
Scientific, Technical, and Medical 22,269 20,716
Higher Education 16,051 18,684
European segment 18,694 15,422
Asia, Australia & Canada 3,191 4,143
------------ ------------
Total direct contribution to profit 75,756 77,153
Shared services and administrative costs
----------------------------------------
Distribution (11,739) (11,261)
Information technology (12,269) (11,801)
Finance (7,339) (7,051)
Other administration (13,632) (13,862)
------------ ------------
Total shared services and administration (44,979) (43,975)
costs
------------ ------------
Operating income 30,777 33,178
Interest expense and other - net (1,187) (1,260)
------------ ------------
Income before taxes $29,590 $31,918
============ ============
8. Intangible Assets
-----------------
Intangible assets consisted of the following (in thousands):
As of July 31, As of
----------------------------------- April 30,
2004 2003 2004
---------------- -------------- ---------------
Intangible assets not subject to amortization
Branded trademarks $57,900 $57,900 $57,900
Acquired publication rights 117,452 116,433 116,584
---------------- -------------- ---------------
Total intangible assets not subject to amortization 175,352 174,333 174,484
Net, intangible assets subject to amortization, principally
acquired publication rights 105,292 105,773 101,956
---------------- -------------- ---------------
Total $280,644 $280,106 $276,440
================ ============== ===============
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. The Company did not hold any derivative
financial instruments during the first quarter of fiscal year 2005.
10. Retirement Plans
----------------
The components of net pension expense for the defined benefit plans were as
follows:
For the Three Months Ended July 31,
---------------------------------------
(Dollars in thousands) 2004 2003
----------------- ----------------
Service Cost $2,147 $1,521
Interest Cost 2,653 2,174
Expected Return of Plan Assets (2,268) (1,519)
Net Amortization of Prior Service Cost 154 153
Net Amortization of Unrecognized Transition Asset (6) (8)
Recognized Net Actuarial Loss 457 427
----------------- ----------------
Net Pension Expense $3,137 $2,748
================= ================
As of July 31, 2004, no contributions have been made to the domestic
defined benefit plans for the fiscal year 2005. The Company does not
anticipate making any contributions to its domestic defined benefit pension
plan in fiscal year 2005 as, currently, none is statutorily required.
However, from time to time, the Company may elect to voluntarily contribute
to the plan to improve its funded status.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, including course management and study
guides for undergraduate and graduate students, teachers and lifelong learners.
The Company takes full advantage of the product content of its various core
businesses to develop products that can be cross-marketed to its diverse
customer base of academics, professionals, researchers and consumers. The use of
technology enables the Company to make its content more accessible to its global
communities of interest. The Company maintains publishing, marketing, and
distribution centers in the United States, Canada, Europe, Asia, and Australia.
See the Company's 10K annual financial report for further information regarding
the Company's product lines and business segments.
RESULTS OF OPERATIONS -
FIRST QUARTER ENDED JULY 31, 2004
Revenue for the first quarter of fiscal year 2004 of $226.9 million increased 3%
from $219.7 million in the prior year's first quarter, or 2% excluding foreign
currency gains. The first quarter revenue increase was driven by healthy
year-on-year growth in the STM business, with new society journals, existing
journals and STM books contributing to these results. As planned, the P/T
business was flat with last year's strong first quarter. Higher Education
revenue was below our expectations.
Gross profit as a percentage of revenue was 66.9% compared to 67.2% in the prior
year's quarter. First quarter operating income of $30.8 million declined from
$33.2 million in the prior year's first quarter principally due to
lower-than-expected revenue from Higher Education and flat Professional/Trade
revenue. Operating and administrative expenses increased almost 6% over last
year's first quarter, or 4% excluding the adverse effect of foreign exchange.
Other than higher-than-anticipated health care costs in the US, operating and
administrative costs were as expected.
Net income for the quarter of $19.9 million declined from $21.8 million in the
prior year mainly due to lower operating income. Earnings per diluted share was
$0.32 compared to $0.35 in the prior year.
SEGMENT RESULTS
Professional/Trade (P/T)
- ------------------------
Wiley's U.S. P/T revenue for the first quarter was $75.9 million, essentially
flat with prior year and in line with management's expectations considering last
year's first quarter, which was up 8%. The architecture, professional culinary,
psychology and education book programs performed well. Subscription journals and
online advertising also contributed positively to the first quarter revenue.
However, sales in the consumer cooking and business categories lagged behind
last year's first quarter.
The first quarter is the least significant for Professional/Trade, in terms of
revenue. We anticipate that solid fall, winter and spring frontlists will drive
year-on-year growth during the balance of fiscal year 2005. The direct
contribution margin for the first quarter was 20.5% compared with 23.9% in the
prior year's first quarter. The decline was mainly due to lower gross profit
attributable to product mix, in addition to higher royalties and employment
costs to support planned activity through the remainder of the year.
Several P/T titles received considerable attention from the media and our
customers, including Maccioni & Wright/Sirio: The Story of My Life and Le
Cirque; Edwards/Edward R. Murrow and the Birth of Broadcast Journalism; and
Pescatore/The Hamptons Diet. The Edwards' book was on the New York
Times-Expanded Best Seller list for nine weeks. Other titles that were on
national and regional best seller lists include Lencioni/Five Dysfunctions of a
Team; Lencioni/Death by Meeting; Allen/Multiple Streams of Income; and
Mauldin/Bull's Eye Investing.
While the business program fell short of last year's first quarter performance,
it performed better than expected. First quarter highlights include the
publication of Flying High: How JetBlue Founder and CEO David Neeleman Beat the
Competition in the World's Most Turbulent Industry. Ross & Segal/Breakthrough
Thinking for Nonprofit Organizations was selected as this year's winner of the
Terry McAdam Book Award, a prestigious honor from the Alliance for Nonprofit
Management, The Chronicle of Philanthropy, and the New York Community Trust.
Four P/T journals were recognized for outstanding quality: Leader to Leader, the
National Civic Review, and Natural Gas and Electricity each received a 2004 Apex
Award of Excellence from Communications Concepts, while Human Resources
Management received a 2004 Golden Page Award for general readability.
P/T's architecture/engineering and professional culinary/hospitality programs
had a strong quarter. A bulk sale of a customized edition of our Guide to New
York City Landmarks was made during the quarter. The guide will be distributed
to every delegate and guest attending the Republican National Convention in New
York. Piotrowski/Becoming an Interior Designer was named by the American Society
of Interior Designers as this year's Polsky Prize winner. A multi-year contract
to provide course plans and textbooks and develop curricula in hospitality
management was signed with Axia College, a University of Phoenix sister school.
This was a collaborative effort between Wiley's P/T and Higher Education
businesses.
Throughout July, Wiley participated in a successful co-promotion with
Travelocity. Ads for the campaign appeared in USA Today and The Wall Street
Journal, among other publications and online sites. An agreement with MTV was
signed during the quarter to publish an eight volume series of travel guides
targeted to students and co-branded as MTV and Frommer's.
Guitar For Dummies, Forensics For Dummies, and nine pet-related titles were top
performers in the quarter. Two video/DVDs that were produced with Razor & Tie,
Golf For Dummies and Poker For Dummies, were released successfully and benefited
from a television advertising campaign. PCs Para Dummies, 8th edition, received
an award as the "Best Business Book for 2003" from the Latino Book and Family
Festival.
Scientific, Technical And Medical (STM)
- ---------------------------------------
Wiley's U.S. STM business started the year on a strong note, with revenue in the
first quarter up 11% over prior year. Journal revenue increased 12%, with new
society journals and existing journals, contributing significantly to the
year-on-year growth. The STM book program performed well, as reflected in a 9%
revenue increase over prior year.
Direct contribution margin for the first quarter of fiscal year 2005 was 48.2%
for the first quarter compared with 49.7% in the prior year quarter. Product
mix, mainly due to the addition of new society journals and higher STM book
sales, accounted for the change. Although STM book sales provide a healthy
contribution margin, they are less than the contribution margin provided by most
STM journals.
In addition to healthy license renewals, several new Enhanced Access Licenses to
Wiley InterScience were signed by academic and corporate customers around the
world. Customers continue to take advantage of Wiley InterScience's wide range
of access options. During the quarter, the number of visits to Wiley
InterScience increased by approximately 40% over prior year.
STM launched a number of major reference works in Wiley InterScience during the
quarter, including the Encyclopedia of Statistical Sciences, Handbook of Plant
Biotechnology, and Handbook of Statistical Genetics, Genomics, and Proteomics.
In addition, journals were added to the Company's Biotechnology Backfile
collection. Wiley and the American College of Rheumatology signed a long-term
contract extension for the journal publications Arthritis and Rheumatism and
Arthritis Care and Research.
The global STM book program performed very well during the first quarter.
Product output was excellent; manuscript transmittals have been strong; global
market conditions were relatively favorable; and online sales channels have
fueled growth. Key titles that are contributing to these results include
VanBelle/Biostatistics: A Methodology for the Health Sciences, second edition;
Freeman/Telecommunications Systems Engineering, fourth edition; Proctor and
Hughes/Chemical Hazards of the Workplace, fifth edition; Witcoff/Industrial
Organic Chemicals, second edition; Grob/Modern Practice of Gas Chromatography,
fourth edition; Basagni/Mobile Ad Hoc Networking; and Hancock/Dictionary of
Bioinformatics and Computational Biology. Further, the publication of new
volumes of major continuation titles, such as the Kirk-Othmer Encyclopedia of
Chemical Technology and the Encyclopedia of Statistical Sciences, bolstered
sales.
Higher Education
- ----------------
Revenue of Wiley's U.S. Higher Education business declined 5% during the first
quarter. Softness in engineering, computer science, and business was partially
offset by continued strength in the social sciences. Management believes some
delayed ordering and tighter inventory controls by college bookstores, as well
as increases in used book sales and the sharing of textbooks by students appear
to have contributed to the disappointing results. Management also believes that
some of these factors may have a positive effect on Higher Education sales
returns later in the year. For the first semester, college bookstores purchase
inventory in July and August, with reorders in the first half of September,
followed by returns in October when the cycle is repeated for the second
semester.
The decline in direct contribution to profit of $2.6 million was mainly due to
lower revenue and higher composition costs.
Strong performances were recorded by titles such as Tortora/Anatomy and
Physiology, tenth edition; Kieso/Intermediate Accounting, eleventh edition;
Cutnell/Physics, sixth edition; deBlij/Regions; and Solomons/Organic Chemistry,
eleventh edition.
The Company's online product, eGrade Plus, was launched for 30 new courses in
the first quarter. eGrade Plus delivers integrated content that is organized
around teaching and learning activities. Several pricing options are available
to students. In addition to purchasing a textbook, the student receives online
study guides and self-testing products, which provide immediate feedback to
promote understanding of the subject and help the student succeed in the course.
Professors who adopt eGrade Plus can customize the course content to fit their
curriculum.
During the quarter, Wiley Higher Education and Rand McNally & Co. renewed and
expanded an agreement for Wiley to be the exclusive distributor to the academic
community of Rand McNally's Goode's World Atlas, 21st Edition. Wiley is also
publishing and distributing new regional and course editions of Goode's Atlas,
as well as the Goode's World Atlas Map Workbook.
Europe
- ------
Wiley Europe's first quarter revenue was up 18% over prior year, or 12%
excluding foreign currency effects. Journal revenue was up across all markets.
Book sales increased, especially through online sales channels. Of particular
note were the strong sales of indigenous products from both the U.K. and
Germany, as well as of imported U.S. Professional/Trade titles. The improvement
in the first quarter direct contribution to profit of $3.3 million, or $2.7
million excluding foreign currency effects, was principally driven by higher
revenue.
Corporate and special sales of Prechter/Conquer the Crash, Hasslacher/Diabetes
and the Kidney, Concise Encyclopedia of Computer Science, and a customized
version of Wi-Fi For Dummies contributed to the quarter's strength. An agreement
was signed with Lilly to sponsor a series of newsletters based on Practical
Diabetes International.
Wiley Europe's general interest and consumer publishing program continues to
generate publicity. First quarter highlights include the serialization in
national newspapers and magazines for Morrison/My Life Among the Serial Killers;
Pound/Inside the Olympics; and Pescatore/The Hamptons Diet. Interior Angles, a
new series in interior design, was launched during the quarter, as part of a
revamped U.K. architecture list. The first title, Fashion Retail, was well
received by the market.
During the quarter, Wiley-VCH successfully launched the new journal, Plasma,
Processes, and Polymers and published a number of new major reference works.
Asia, Australia & Canada
- ------------------------
Wiley's revenue in Asia, Australia, and Canada was flat during the first
quarter, or down 2% excluding foreign exchange. Growth was encouraging
throughout most of Asia. However, sluggish results in Australia and Canada due
to lower indegeneous sales offset this growth. The decline in direct
contribution to profit was due to product mix resulting from lower indigenous
sales.
Key Wiley Asia publications for the quarter included Lexus: The Relentless
Pursuit by Business Week auto-correspondent Chester Dawson, as well as
Structured Credit Products and Fixed Income Markets, both by Moorad Choudhry.
The gradual economic recovery in Japan, combined with the development of a local
market partnership with a major online bookseller, had a positive effect on
results in Asia.
Sales of Wiley's Higher Education products in Canada were below expectations.
Nonetheless, the market response to eGrade Plus, including a Canadian adaptation
for Weygandt/Accounting Principles, third edition, was positive. Wiley Canada's
indigenous titles did well during the quarter, in particular, Pound/Inside the
Olympics, which picked up interest outside of Canada.
Wiley Australia's School division won Secondary Publisher of the Year, for the
fifth consecutive year, at the seventh annual Awards for Excellence in
Australian Educational Publishing. Recognizing overall excellence, the award was
granted by a panel of judges that included booksellers, teachers, and
publishers.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities for the first quarter of fiscal year 2005
improved $8.5 million principally due to lower pension contributions, reported
as non-cash charges & other, and higher trade receivable collections, partially
offset by higher annual incentive compensation payments related to fiscal year
2004 performance. The increase in accounts receivable over the prior year is
primarily attributable to EAL licenses and foreign exchange. The increase in
accounts receivable since April 30,2004 is due to the seasonality of the Higher
Education business.
Investing activities used $22.5 million for the first quarter of fiscal year
2005 as compared to $19.5 million in the prior year period. Investing activities
in the first quarter include $11.7 million for product development and $5.1
million for property, equipment and technology expenditures, the majority of
which was for investments in technology. Estimated spending on product
development and property, equipment and technology for the full fiscal year 2005
is projected to be approximately $70 million and $30 million, respectively.
During the first quarter of fiscal year 2005, the Company acquired publishing
rights to a controlled circulation journal, The Journal of Microscopy and
Analysis.
The first quarter's financing activities include the continuation of the
Company's stock repurchase program. During the quarter 312,400 shares were
purchased at an average price of $31.32 per share. The Company increased its
quarterly dividend to shareholders by 15% to $0.075 per share.
The Company believes its cash balances together with existing credit facilities
are sufficient to meet its obligations. At July 31, 2004 the Company had $200
million of variable rate loans outstanding, which approximated fair value and
$132 million available under its revolving credit facilities and other
short-term lines of credit. The final payment on the variable rate term loan is
due September 2006. 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) the Company's ability to
protect its copyrights and other intellectual property worldwide (ix) other
factors detailed from time to time in the Company's filings with the Securities
and Exchange Commission. The Company undertakes no obligation to update or
revise any such forward-looking statements to reflect subsequent events or
circumstances.
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 customer 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. The Company did not
hold any derivative financial instruments during the first quarter of fiscal
year 2005.
Interest Rates
The Company did not use any derivative financial investments to manage this
exposure. The weighted average interest rate as of July 31, 2004 was
approximately 2.56%. A hypothetical 1% change in interest rates for the variable
rate 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.
Customer 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 2004 consolidated revenue, the
top ten book customers accounted for approximately 25% of total fiscal year 2004
consolidated revenue and approximately 50% of total gross trade accounts
receivable at April 30, 2004. 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. Cash is 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 22% of total fiscal year 2004
consolidated revenue and no one agent accounted for more than 7% of total fiscal
year 2004 consolidated revenue. Insurance for these accounts is not commercially
feasible and/or available.
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 July 12,
2004.
i. Earnings release on the first quarter fiscal 2004 results issued
on form 8-K dated August 31, 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 July 12,
2004.
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: September 9, 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: September 9, 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: September 9, 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 July 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: September 9, 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 July 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: September 9, 2004