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, 2005 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 February 28, 2005 were:
Class A, par value $1.00 - 48,742,552
Class B, par value $1.00 - 10,957,264
This is the first page of a 29-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, 2005 and 2004, and April 30, 2004..................................................................3
Condensed Consolidated Statements of Income - Unaudited
for the Three and Nine Months ended January 31, 2005 and 2004........................................................4
Condensed Consolidated Statements of Cash Flows - Unaudited
for the Nine Months ended January 31, 2005 and 2004..................................................................5
Notes to Unaudited Condensed Consolidated Financial Statements.......................................................6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................................................14-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................................23
Item 4. Controls and Procedures................................................................................................24
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................................................24
SIGNATURES AND CERTIFICATIONS..................................................................................................25-27
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,
------------------------------------ ----------------
2005 2004 2004
---------------- ---------------- ----------------
Assets
Current Assets
Cash and cash equivalents $ 139,841 93,051 $ 82,027
Accounts receivable 166,588 151,618 127,224
Inventories 78,133 81,288 83,789
Deferred income tax benefits 15,630 27,257 18,113
Prepaid and other 13,597 9,753 12,853
---------------- ---------------- ----------------
Total Current Assets 413,789 362,967 324,006
Product Development Assets 59,755 60,115 60,755
Property, Equipment and Technology 115,083 119,313 117,305
Intangible Assets 285,337 280,714 276,440
Goodwill 195,034 195,705 194,893
Deferred Income Tax Benefits 16,672 31,349 18,976
Other Assets 22,679 22,259 22,207
---------------- ---------------- ----------------
Total Assets $ 1,108,349 1,072,422 $ 1,014,582
================ ================ ================
Liabilities & Shareholders' Equity
Current Liabilities
Accounts and royalties payable $ 91,996 100,397 $ 68,338
Deferred subscription revenue 143,510 135,970 127,224
Accrued income taxes 42,329 42,799 19,338
Accrued pension liability 5,159 12,780 4,559
Deferred income taxes 5,784 - 5,721
Other accrued liabilities 69,889 58,918 81,185
---------------- ---------------- ----------------
Total Current Liabilities 358,667 350,864 306,365
Long-Term Debt 200,000 200,000 200,000
Accrued Pension Liability 53,919 51,444 48,505
Other Long-Term Liabilities 32,940 30,631 31,757
Deferred Income Taxes 9,006 12,489 12,891
Shareholders' Equity
Class A & Class B common stock 83,190 83,190 83,190
Additional paid-in-capital 53,205 42,341 45,887
Retained earnings 506,980 435,635 441,533
Accumulated other comprehensive income 11,822 4,443 2,197
Unearned deferred compensation (3,069) (1,814) (2,134)
Treasury stock (198,311) (136,801) (155,609)
---------------- ---------------- ----------------
Total Shareholders' Equity 453,817 426,994 415,064
---------------- ---------------- ----------------
Total Liabilities & Shareholders' Equity $ 1,108,349 1,072,422 $ 1,014,582
================ ================ ================
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,
---------------------------------- ----------------------------------
2005 2004 2005 2004
---------------- ---------------- ---------------- ----------------
Revenue $ 258,428 242,357 $ 732,417 690,897
Costs and Expenses
Cost of sales 85,708 81,979 246,184 232,270
Operating and administrative expenses 119,630 114,011 357,232 337,350
Amortization of intangibles 2,665 2,517 7,675 7,382
---------------- ---------------- ---------------- ----------------
Total Costs and Expenses 208,003 198,507 611,091 577,002
---------------- ---------------- ---------------- ----------------
Operating Income 50,425 43,850 121,326 113,895
Interest income and other (net) 180 58 281 873
Interest expense (2,154) (1,278) (5,002) (3,965)
---------------- ----------------- ---------------- ----------------
Net Interest Expense and Other (1,974) (1,220) (4,721) (3,092)
---------------- ----------------- ---------------- ----------------
Income Before Taxes 48,451 42,630 116,605 110,803
Provision For Income Taxes 15,660 11,286 37,471 32,011
---------------- ----------------- ---------------- ----------------
Net Income $ 32,791 31,344 $ 79,134 78,792
================ ================= ================ ================
Income Per Share
Diluted $ 0.53 0.50 $ 1.27 1.25
Basic $ 0.54 0.51 $ 1.30 1.27
Cash Dividends Per Share
Class A Common $ 0.08 0.07 $ 0.23 0.20
Class B Common $ 0.08 0.07 $ 0.23 0.20
Average Shares
Diluted 62,064 63,086 62,539 63,069
Basic 60,513 61,823 60,998 61,800
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,
------------------------------------
2005 2004
---------------- ----------------
Operating Activities
- --------------------
Net income $ 79,134 78,792
Adjustments to reconcile net income to cash provided by (used for)
operating activities
Amortization of intangibles 7,675 7,382
Amortization of composition costs 25,590 23,386
Depreciation of property, equipment and technology 23,084 21,072
Non-cash charges & other 43,520 45,552
Change in deferred subscription revenue 14,722 12,742
Net change in operating assets and liabilities (4,890) (14,941)
---------------- ----------------
Cash Provided by Operating Activities 188,835 173,985
---------------- ----------------
Investing Activities
- --------------------
Additions to product development assets (45,285) (41,366)
Additions to property, equipment and technology (17,948) (20,852)
Acquisition of publishing assets and rights (13,697) (3,066)
---------------- ----------------
Cash Used for Investing Activities (76,930) (65,284)
---------------- ----------------
Financing Activities
- --------------------
Repayment of long-term debt - (35,000)
Purchase of treasury stock (45,416) (7,013)
Cash dividends (13,687) (12,126)
Proceeds from exercise of stock options 3,922 4,012
---------------- ----------------
Cash Used for Financing Activities (55,181) (50,127)
---------------- ----------------
Effects of Exchange Rate Changes on Cash 1,090 1,236
---------------- ----------------
Cash and Cash Equivalents
Increase (Decrease) for Period 57,814 59,810
Balance at Beginning of Period 82,027 33,241
---------------- ----------------
Balance at End of Period $ 139,841 93,051
================ ================
Supplemental Information
Businesses/Rights Acquired:
Fair value of assets acquired $ 13,697 3,066
Liabilities assumed - -
---------------- ----------------
Cash Paid for Businesses/Rights Acquired $ 13,697 3,066
================ ================
Cash Paid During the Period for:
Interest $ 3,725 3,544
Income taxes - Net $ 10,066 10,776
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 January 31, 2005 and 2004, the results
of operations for the three month and nine month periods ended January 31,
2005 and 2004, and cash flows for the nine month periods ended January 31,
2005 and 2004. The results for the three months and nine months ended
January 31, 2005 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, 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. In December 2004, The Financial Accounting Standards Board
issued Statement No. 123 (revised 2004), "Share Based Payment."
Accordingly, the Company will revise its accounting for stock options and
restricted stock, as required, in the second quarter of fiscal year 2006
(see footnote 6).
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,
--------------------------------
2005 2004
------------- -------------
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%
Per share fair value of options granted $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 For the Nine Months
Ending January 31, Ending January 31,
------------------------ ------------------------
(in thousands except per share amount) 2005 2004 2005 2004
----------- ----------- ----------- -----------
Net income as reported $32,791 31,344 $79,134 78,792
Stock-based compensation, net of tax, included in the
determination of net income as reported -
Restricted stock plans 962 511 2,481 1,461
Director stock plan 14 16 43 31
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 (2,295) (1,643) (6,550) (4,861)
----------- ----------- ----------- -----------
Pro forma net income $31,472 30,228 $75,108 75,423
=========== =========== =========== ===========
Reported earnings per share
Diluted $0.53 0.50 $1.27 1.25
Basic $0.54 0.51 $1.30 1.27
Pro forma earnings per share
Diluted $0.51 0.48 $1.20 1.20
Basic $0.52 0.49 $1.23 1.22
2. Comprehensive Income
--------------------
Comprehensive income was as follows (in thousands):
For the Three Months For the Nine Months
Ending January 31, Ending January 31,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net income $32,791 31,344 $79,134 78,792
Change in other comprehensive income (loss), net of taxes:
Derivative cash flow hedges - 90 - (187)
Foreign currency translation adjustment 4,161 3,338 9,625 11,801
----------- ----------- ----------- -----------
Comprehensive income $36,952 34,772 $88,759 90,406
=========== =========== =========== ===========
A reconciliation of accumulated other comprehensive gain (loss) follows (in
thousands):
Three Months Ended January 31, 2005
----------------------------------------------------
Beginning Change for Ending
Balance Period Balance
--------------- -------------- ---------------
Foreign currency translation adjustment $23,587 4,161 27,748
Minimum pension liability, net of tax (15,926) - (15,926)
--------------- -------------- ---------------
Total $7,661 4,161 11,822
=============== ============== ===============
Nine Months Ended January 31, 2005
----------------------------------------------------
Beginning Change for Ending
Balance Period Balance
--------------- -------------- ---------------
Foreign currency translation adjustment $18,123 9,625 27,748
Minimum pension liability, net of tax (15,926) - (15,926)
--------------- -------------- ---------------
Total $2,197 9,625 11,822
=============== ============== ===============
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 For the Nine Months
Ending January 31, Ending January 31,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Weighted average shares outstanding 60,819 62,104 61,285 62,057
Less: Unearned deferred compensation shares (306) (281) (287) (257)
----------- ----------- ----------- -----------
Shares used for basic income per share 60,513 61,823 60,998 61,800
Dilutive effect of stock options and other stock awards 1,551 1,263 1,541 1,269
----------- ----------- ----------- -----------
Shares used for diluted income per share 62,064 63,086 62,539 63,069
=========== =========== =========== ===========
4. Inventories
-----------
Inventories were as follows (in thousands):
As of
As of January 31, April 30,
-------------------------------- --------------
2005 2004 2004
-------------- -------------- --------------
Finished goods $66,621 73,635 $74,310
Work-in-process 7,070 5,711 7,582
Paper, cloth and other 7,242 5,797 4,397
-------------- -------------- --------------
80,933 85,143 86,289
LIFO reserve (2,800) (3,855) (2,500)
-------------- -------------- --------------
Total inventories $78,133 81,288 $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.
In the third quarter of fiscal year 2005, the Company acquired the rights
to the reference portfolio of the Macmillan Nature Publishing Group for
approximately $4.5 million.
The Company invested $3.1 million in other acquisitions during the
nine-month period ended January 31, 2004, including payments to complete
acquisitions, the purchase of publishing rights to several P/T and STM
journals and other publications.
Each of the acquisitions above was 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 fiscal year did not have a material impact
on the Company's consolidated financial statements.
In October 2004, Congress passed the American Jobs Creation Act of 2004
(the "Act"). In addition to a number of other changes in the tax law, the
Act provides a deduction from taxable income equal to a stipulated
percentage of qualified income from Companies that pay U.S income taxes on
manufacturing activities in the U.S. The Act also provides for a one-time
tax benefit on the repatriation of foreign earnings. In December 2004, the
Financial Accounting Standards Board ("FASB") issued two FASB Staff
Positions ("FSP") regarding the accounting implications of the Act. First,
the FSP requires that the deduction for qualified domestic property be
accounted for as a special deduction in accordance with FASB Statement No.
109, Accounting for Income Taxes, thus reducing a company's tax expense in
the period or periods the amounts are deductible on its tax return. The
Company is evaluating the potential effect of the Act, which replaces other
income tax benefits no longer available to the Company. The net impact of
the Act is expected to be favorable to the Company's income tax rate.
Second, the FSP also requires that a company record a tax liability in the
period that the company determines an amount of foreign earnings that will
be repatriated under the Act. The Company has begun an evaluation of the
effects of the repatriation provision of the tax Act. The evaluation is
expected to be completed by fiscal year end 2005. The range of possible
repatriated amounts the Company is considering is zero to $125 million.
In December 2004, the FASB issued Statement No. 123 (revised 2004) ("SFAS
123R"), Share-Based Payments. SFAS 123R will require the Company to measure
the cost of all employee stock-based compensation awards based on the
grant-date-fair-value and to record that cost as compensation expense over
the period during which the employee is required to perform service under
the terms of the award. The statement eliminates the alternative method of
accounting for the employee share-based payments previously available under
Accounting Principles Board Opinion No.25. SFAS 123R is effective beginning
in the Company's second quarter of fiscal year 2006. The Company currently
discloses the pro forma effect of SFAS 123 in note 1 to these financial
statements and is currently evaluating the impact of SFAS 123R adoption.
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,
--------------------------------------------------------------------------------
2005 2004
--------------------------------------- -----------------------------------
(thousands)
Inter- Inter-
External segment External segment
Customers Sales Total Customers Sales Total
----------- ----------- ----------- ----------- ---------- ----------
Revenue
-------
U.S. segments:
Professional/Trade $81,848 10,000 91,848 $75,522 9,085 84,607
Scientific, Technical, and Medical 40,995 2,238 43,233 40,468 2,016 42,484
Higher Education 38,242 6,952 45,194 40,415 6,407 46,822
European segment 60,789 5,655 66,444 54,189 4,676 58,865
Asia, Australia & Canada 36,554 372 36,926 31,763 513 32,276
Eliminations - (25,217) (25,217) - (22,697) (22,697)
----------- ----------- ----------- ----------- ---------- ----------
Total revenue $258,428 - 258,428 $242,357 - 242,357
----------- ----------- ----------- ----------- ---------- ----------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $30,938 $23,372
Scientific, Technical, and Medical 18,635 19,633
Higher Education 15,220 17,835
European segment 20,339 18,078
Asia, Australia & Canada 12,251 10,420
----------- ----------
Total direct contribution to profit 97,383 89,338
Shared services and administrative costs
----------------------------------------
Distribution (11,550) (11,882)
Information technology (12,777) (12,259)
Finance (9,119) (6,480)
Other administrative (13,512) (14,867)
----------- ----------
Total shared services and administrative costs (46,958) (45,488)
----------- ----------
Operating income 50,425 43,850
Interest expense and other - net (1,974) (1,220)
----------- ----------
Income before taxes $48,451 $42,630
=========== -=========
Nine Months Ended January 31,
----------------------------------------------------------------------------------
2005 2004
----------------------------------------- -------------------------------------
(thousands)
Inter- Inter-
External segment External segment
Customers Sales Total Customers Sales Total
------------- ------------- ----------- ------------ ----------- ----------
Revenue
-------
U.S. segments:
Professional/Trade $229,959 26,886 256,845 $222,210 25,072 247,282
Scientific, Technical, and Medical 130,300 5,835 136,135 121,519 5,366 126,885
Higher Education 107,382 23,962 131,344 110,134 22,130 132,264
European segment 178,692 15,000 193,692 157,363 12,103 169,466
Asia, Australia & Canada 86,084 1,240 87,324 79,671 1,078 80,749
Eliminations - (72,923) (72,923) - (65,749) (65,749)
------------- ------------- ----------- ------------ ----------- ----------
Total revenue $732,417 - 732,417 $690,897 - 690,897
------------- ------------- ----------- ------------ ----------- ----------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $72,644 $66,942
Scientific, Technical, and Medical 62,301 60,852
Higher Education 43,663 46,454
European segment 60,847 52,730
Asia, Australia & Canada 21,255 20,043
----------- ----------
Total direct contribution to profit 260,710 247,021
Shared services and administrative costs
----------------------------------------
Distribution (35,308) (34,734)
Information technology (38,009) (36,488)
Finance (24,359) (20,720)
Other administrative (41,708) (41,184)
----------- ----------
Total shared services and administrative costs (139,384) (133,126)
------------ ----------
Operating income 121,326 113,895
Interest expense and other - net (4,721) (3,092)
------------ ----------
Income before taxes $116,605 $110,803
============ ==========
8. Intangible Assets
-----------------
Intangible Assets consist of the following (in thousands):
As of
As of January 31, April 30,
--------------------------------- -----------
2005 2004 2004
----------- ----------- -----------
Intangible assets not subject to amortization
Branded trade marks $ 57,900 57,900 $ 57,900
Acquired publication rights 120,272 117,900 116,584
----------- ----------- -----------
Total intangible assets not subject to amortization 178,172 175,800 174,484
----------- ----------- -----------
Net, intangible assets subject to amortization, 107,165 104,914 101,956
principally acquired publication rights
----------- ----------- -----------
Total $285,337 280,714 $276,440
=========== =========== ===========
The Company performed the annual evaluation of its goodwill and indefinite
life intangible assets in accordance with SFAS No. 142 during the third
quarter of fiscal year 2005. Based upon this evaluation no impairment was
required.
9. Derivative Financial Instruments
--------------------------------
Under certain circumstances, the Company may enter into derivative
financial instruments to hedge against foreign currency fluctuation on
specific transactions or interest rate volatility. 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
nine months 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 For the Nine Months
Ending January 31, Ending January 31,
------------------------ ------------------------
(Dollars in thousands) 2005 2004 2005 2004
----------- ----------- ----------- -----------
Service Cost $2,258 1,595 $6,248 5,086
Interest Cost 2,523 2,227 7,896 6,672
Expected Return of Plan Assets (2,145) (1,527) (6,679) (4,641)
Net Amortization of Prior Service Cost 115 151 407 456
Net Amortization of Unrecognized Transition Asset (7) (9) (20) (25)
Recognized Net Actuarial Loss 519 482 1,457 1,385
----------- ----------- ----------- -----------
Net Pension Expense $3,263 2,919 $9,309 8,933
=========== =========== =========== ===========
As of January 31, 2005, no contributions have been made to the U.S. defined
benefit plan for fiscal year 2005. The Company does not anticipate making
any contributions to its U.S. 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.
Globally, pension plan contributions were $4.2 million and $9.8 million for
the nine months ended January 31, 2005 and 2004, respectively.
11. Subsequent Event
----------------
As previously disclosed in the Company's 8-K filing with the Securities and
Exchange Commission on January 14, 2005, the Company entered into an
agreement to purchase one million shares of it's Class A stock from several
entities associated with the Bass group of Fort Worth, Texas. The
transaction was completed on February 4, 2005 for approximately $32.5
million and paid for out of existing cash balances.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -
THIRD QUARTER ENDED JANUARY 31, 2005
Revenue for the third quarter increased 7% to $258.4 million from $242.4 million
in the prior year driven primarily by the strong growth in international
operations and solid performance in the U.S. Professional/Trade (P/T) business.
Continued strength in the Scientific, Technical and Medical (STM) journal and
book business worldwide contributed to the growth. The third quarter performance
of the Higher Education business was below expectations and prior year due to
challenging market conditions. The Company's third quarter revenue increased 5%
excluding foreign currency gains.
Earnings per diluted share increased to $0.53 from $0.50 in the prior year's
third quarter. In the third quarter of fiscal year 2004 the Company reported a
net tax benefit of $3.0 million, or $0.05 per diluted share on the favorable
resolution of certain state and federal tax matters, and an adjustment to
accrued foreign taxes. Excluding the net tax benefit, earnings per diluted share
for the third quarter increased 18% to $0.53 from $0.45 or 13% excluding foreign
currency gains. Net income on the same basis increased 16% to $32.8 million from
$28.3 million or 12% excluding foreign currency gains.
Gross profit as a percentage of revenue improved during the quarter to 66.8%
from 66.2% in the prior year's quarter. Improved margins in both the U.S. P/T
segment, principally due to lower inventory and author royalty advance
provisions, and the European segment, principally due to product mix, were
partially offset by lower margins in the U.S. Higher Education and STM segments.
Operating and administrative expenses for the third quarter increased 5%, or 4%
excluding foreign currency effects, primarily due to operating expenses on
higher sales volume and shared services and administrative costs. Third quarter
operating income of $50.4 million increased 15% from $43.9 million in the same
period of the prior year or 11% excluding foreign currency effects. Interest
expense increased $0.9 million mainly due to interest on a foreign tax
settlement and higher borrowing rates partially offset by lower debt
outstanding.
Taxes
- -----
The Company's effective tax rates for the third quarter of fiscal 2005 and 2004
were 32.3% and 26.5%, respectively. In the third quarter of fiscal year 2004 the
Company reported a net tax benefit of $3.0 million or $0.05 a share related to
the resolution of certain federal and state tax matters and an adjustment to
accrued foreign taxes. Excluding the net tax benefit, the effective tax rate for
the third quarter of fiscal year 2004 was 33.6%.
In October 2004, Congress passed the American Jobs Creation Act of 2004 (the
"Act"). In addition to a number of other changes in the tax law, the Act
provides a deduction from taxable income equal to a stipulated percentage of
qualified income from companies that pay U.S. income taxes on manufacturing
activities in the U.S. The Act also provides for a one-time tax benefit on the
repatriation of foreign earnings. In December 2004, the Financial Accounting
Standards Board ("FASB") issued two FASB Staff Positions ("FSP") regarding the
accounting implications of the Act. First, the FSP requires that the deduction
for qualified domestic property be accounted for as a special deduction in
accordance with FASB Statement No. 109, Accounting for Income Taxes, thus
reducing a company's tax expense in the period or periods the amounts are
deductible on its tax return. The Company is evaluating the potential effect of
the Act, which replaces other income tax benefits no longer available to the
Company. The net impact of the Act is expected to be favorable to the Company's
income tax rate.
Second, the FSP also requires that a company record a tax liability in the
period that the company determines an amount of foreign earnings that will be
repatriated under the Act. The Company has begun an evaluation of the effects of
the repatriation provision of the tax Act. The evaluation is expected to be
completed by fiscal year end 2005. The range of possible repatriated amounts the
Company is considering is zero to $125 million.
SEGMENT RESULTS
Professional/Trade (P/T)
- ------------------------
U.S. P/T revenue of $92 million for the third quarter advanced 9% from the prior
year. The increase was mainly due to improved sales returns and strong sales of
consumer For Dummies books, the professional culinary program, and sales of
high-end technology titles. Revenue generated through brand licensing, the sale
of rights and online advertising also contributed to the strong performance in
the quarter. Direct contribution to profit increased by 32% in the quarter.
Direct contribution margin increased to 33.7%, principally due to gross margin
improvement reflecting lower inventory and author royalty advance provisions and
prudent expense management.
Five P/T titles were featured on major bestseller lists including, J.K. Lasser
Tax Guide 2005 (including the #1 spot on the New York Times How-To Paperback
Bestsellers list); Winget/Shut Up, Stop Whining and Get a Life; Lencioni/Five
Dysfunctions of a Team; Scott/Mentored by a Millionaire; and Harkins/Everybody
Wins.
Other titles that are performing well include Harroch and Krieger/Poker For
Dummies, Tyson/Taxes 2005 For Dummies and Rathbone/Windows XP For Dummies.
Marks/Olive Trees received a merit award from the New York Bookbinder's Guild.
In January, a redesigned Frommers.com site was launched that includes several
new features, improved search functionality and standard ad sizes to accommodate
advertiser demand. These improvements were well received, as evidenced by record
highs in monthly traffic and book sales.
At the end of the quarter, the Company launched Wiley CPA e-Prep, a self-study
tool for students preparing for the new, computerized CPA exam, created by
prominent financial and accounting educator and Wiley author, Ray Whittington,
in partnership with Acadient, a developer of online educational technology. This
comprehensive product includes audio lectures and slides. Students can use this
tool to identify their own strengths and weaknesses and customize practice exams
accordingly.
The Global Executive Leadership Inventory published during the quarter, under
Wiley's Pfeiffer imprint. This online 360(0) leadership assessment instrument,
created by the internationally renowned business scholar Manfred Kets de Vries,
is designed for coaches, human resources practitioners and training
professionals. The product, which also provides scoring software for non-online
users, was well received in the market.
Scientific, Technical and Medical (STM)
- ---------------------------------------
U.S. STM revenue of $43.2 million increased 2% from the prior year's third
quarter reflecting continuing improvement in the STM book program that began in
the fourth quarter of last year. Journal performance, especially new society
publications and non-subscription revenue, such as off-prints, backfiles and
advertising sales, also contributed to the growth. Direct contribution to profit
decreased by 5% in the quarter. The third quarter direct contribution margin was
43.1% compared to 46.2% in the prior year third quarter reflecting the effect of
investments in Wiley InterScience, additional expense associated with new
society journals and product mix. Globally, STM revenue increased approximately
8% in the quarter reflecting the combined effect of robust journal and book
sales.
Visits to Wiley InterScience exceeded 10 million in the third quarter,
representing 9% growth over the previous quarter. Customers continue to take
advantage of Wiley InterScience's wide range of access options, as reflected in
the positive trend in usage. Google continued to be a key driver of traffic.
Late in the quarter, the National Institutes of Health (NIH) announced its
policy with regard to public access to journal articles that report on
NIH-funded research. The policy requests, but does not require, authors to
deposit manuscripts of articles reporting on NIH-funded research that have been
peer reviewed and accepted for publication into PubMedCentral, which is part of
NIH's National Library of Medicine. NIH will release these manuscripts within
twelve months or less after publication in the journal. Authors will determine
the timing of the release. We are pleased that the NIH listened and responded to
the concerns of publishers and the research community. Wiley will continue to
work closely with our society partners and journal editors to provide excellent
service to our authors and readers. We look forward to working with the NIH and
others to monitor the execution and impact of the new policy and to contribute
positively to its development.
Wiley believes that the research community and society-at-large are best served
by the widest possible dissemination of published health and medical
information. During the past several years, the Company has made significant
investments in Wiley InterScience and new services, such as Pay-Per-View,
Article Select and the digitization of backfiles, to achieve this goal. We are
also enhancing the discoverability of our content through a number of other
initiatives, including CrossRef Search (in conjunction with Google), Google
Scholar and Google Print.
In addition, the Company has been working closely with organizations, including
the American Cancer Society, American Diabetes Association, American Heart
Association, CrossRef and twenty other publishers to develop patientINFORM
(http://www.patientinform.org), a free online service that will disseminate
original medical research directly to patients and their caregivers. This
important initiative was announced in December and will be launched in the
spring. In the past few years, Wiley and other publishers have participated in
the Health InterNetwork Access to Research Initiative (HINARI), sponsored by the
World Health Organization, and in Access to Global Online Research in
Agriculture (AGORA), sponsored by the Food and Agriculture Organization. These
two projects bring open or low-cost access to leading STM journals to end-users
in developing nations. As a result of all of these efforts, more content is
accessible to more people in more ways than ever before in the long history of
scientific, technical and medical publishing.
In January, the American Society of Cytopathology adopted the Wiley InterScience
journal, Cancer Cytopathology, as its official journal, thereby bringing 1,500
members to the bimonthly journal's subscription rolls. Wiley also signed a
multi-year agreement with the Orthopaedic Research Society to publish the
Journal of Orthopaedic Research, beginning with the January 2006 issue.
A new, customer-driven pricing model for Wiley InterScience Online Books
launched in January, delivering flexible and convenient sales options to
customers. Customers are now able to license nearly all new STM book titles, not
only as one-time purchases, but also by annual subscriptions, as they have been
able to do for over a year for our online major reference works. Enhanced
functionality has also been added to the service. With the addition of 400 more
titles, Online Books now offers nearly 1,200 titles.
Higher Education
- ----------------
U.S. Higher Education revenue of $45 million decreased by 3% from prior year
during the third quarter. The disappointing results reflect the combined effect
of increased price resistance among students and continued softness in
engineering and computer science, partially offset by improved sales returns.
Third quarter direct contribution to profit decreased $2.6 million mainly due to
lower sales and increased investments in new products, services and business
models, including eGrade Plus. The third quarter direct contribution margin was
33.7% compared to 38.1% in the prior year's third quarter.
Worldwide adoptions of Wiley's innovative online product, eGrade Plus, have been
encouraging. Currently available with 32 major frontlist textbooks through
several pricing options, eGrade Plus provides the student with a print and/or
online textbook, as well as online study guides and self-testing products, which
provide immediate feedback to help the student succeed in the course. Professors
who adopt eGrade-Plus can customize the course content to fit their specific
curriculum.
During the quarter, Higher Education signed an important multi-year publishing
agreement with the National Geographic Society (NGS), one of the world's
foremost research and educational societies. Wiley will create textbooks and
digital learning tools that will incorporate maps, photographs, graphics,
illustrations and videos from the NGS' vast library to help college students
"see the world with new eyes."
Other alliances formed during the quarter include agreements with OuterNet
Publishing to co-develop lab manuals for introductory biology textbooks; Tata, a
software development company in India, for licensing and selling business
simulations; and Aplia, to sell a Wiley textbook that published during the
quarter, Besanko/Microeconomics 2e, along with its software product.
Europe
- ------
Third quarter revenue for Wiley's European segment of $66 million was up 13%
over prior year, or 7% excluding foreign currency gains. Continuing the positive
trend of the first half of the fiscal year, journal and book revenue were up.
Indigenous STM books and imported U.S. P/T and Wiley-VCH titles performed
particularly well, especially in the Middle East and Africa. Direct contribution
to profit increased by 13% in the quarter reflecting revenue growth.
Sales of The Cochrane Collection, which is now available through Wiley
InterScience, were strong throughout Europe, with Sweden signing and Norway
renewing national site licenses. The Cochrane Collection is a unique source of
information on the effects of health care intervention. Published on a quarterly
basis, The Cochrane Collection consists of a regularly updated collection of
evidence-based medicine databases.
Wiley Europe has continued to grow through an effective combination of organic
growth and small acquisitions. During the third quarter, three acquisitions were
completed: the reference portfolio of the Nature Publishing Group (flagship
print and online products such as Encyclopedia of Life Sciences, Encyclopedia of
the Human Genome and Encyclopedia of Cognitive Science); the book list of
Professional Engineering Publishing, the publishing arm of the Institute of
Mechanical Engineers (electronic and electrical engineering titles that are
particularly strong in automotive and aerospace engineering and fuel cells); and
four journals from Henry Stewart Publications (Journal of Consumer Behaviour,
International Journal of Nonprofit and Voluntary Sector Marketing, Briefings in
Real Estate Finance and Journal of Public Affairs). These acquisitions leverage
the Company's competencies and infrastructure, increase the proportion of
revenue delivered electronically and strengthen its leadership position in
targeted segments.
Wiley Europe signed an agreement with the Securities Institute to publish a
series of introductory finance books. This collaboration provides Wiley with
preferential access to potential authors and readers among the Institute's
17,000 members. In turn, Wiley will provide its global marketing expertise to
help the Institute expand its membership in Asia and North America.
All visitors to the 2005 London Book Fair in March will receive a copy of the
London Book Fair Tips For Dummies. This promotional piece is being supported and
distributed by the event's organizer, Reed Exhibitions, and will reinforce the
For Dummies brand with an influential audience.
Asia, Australia & Canada
- ------------------------
Wiley's revenue in Asia, Australia and Canada was up 14% in the third quarter or
10% excluding foreign currency gains. Higher revenues, particularly in Asia,
contributed to the improvement. Direct contribution to profit advanced 18% or 9%
excluding foreign currency effects reflects the top-line performance.
In Asia, all Wiley product groups contributed to the revenue growth across
practically all of its markets. The strongest growth was in the global STM book
program, which benefited from a strong frontlist. Sales in India, the
Philippines, Thailand, Malaysia, Indonesia and Hong Kong were particularly
strong. Higher Education and P/T performed well in the quarter in most of Wiley
Asia's markets. Sales of Chinese language For Dummies titles, produced locally
in partnership with China Machine Press, have been impressive with every title
reprinting at least once.
In November, a Wiley delegation visited China to meet with government officials,
representatives from the U.S. Embassy, major customers and partners and
university faculty and administration to raise the Company's profile and
strengthen key relationships. The trip was very encouraging and a number of
initiatives are being pursued.
Third quarter results in Australia were up year-on-year with the School and
Higher Education businesses exhibiting strength. Wiley Australia launched
studyon.com during the quarter. A new approach to the senior school study aid
market, studyon.com features a website for each study area that enables students
to access course summaries, create their own study notes and instantly link to
online revision and testing. The Company also signed an agreement with ICAA
(Institute of Chartered Accountants in Australia) to publish its accounting and
auditing handbooks, annual publications that will not only serve student
requirements at the university level, but also professionals.
Wiley Canada's performance during the third quarter benefited from a strong
local publishing program in both P/T and Higher Education. Sixteen new titles
published during the quarter, including Vanderhaeghe/The Body Sense Natural
Diet, which hit #1 on independent bestseller lists in the Healthy and Diet
categories.
Shared Services and Administrative Costs
- ----------------------------------------
Shared services and administrative costs for the third quarter increased 3% to
$47.0 million or 2% excluding the impact of foreign exchange. Costs associated
with Sarbanes Oxley compliance and higher employment costs were partially offset
by incentive receipts associated with the Company's corporate office relocation
to Hoboken, N.J. in August 2003.
NINE MONTHS ENDED JANUARY 31, 2005
Revenue of $732.4 million advanced 6%, or 4% excluding the effect of foreign
currency gains. The improvement was driven by worldwide growth in STM journals
and books and P/T results in both the U.K. and U.S.
Earnings per diluted share for the first nine months of fiscal year 2005
advanced to $1.27 from $1.25 in the prior year period. In the third quarter of
fiscal year 2004 the Company reported a net tax benefit of $3.0 million, or
$0.05 per diluted share on the favorable resolution of certain state and federal
tax matters, and an adjustment to accrued foreign taxes. Excluding the net tax
benefit, earnings per diluted share for the first nine month of fiscal 2005
increased 6% to $1.27 from $1.20, or 3% excluding foreign currency gains. Net
income on the same basis increased 4% to $79.1 million from $75.8 million, or 2%
excluding foreign currency gains.
Gross profit as a percentage of revenue for the first nine months of fiscal 2005
was 66.4% on par with the prior year. Margin improvement in the U.S. P/T segment
and the Asia, Australia and Canada segment were offset by STM margins in the
U.S., principally due to the cost of new society journals, and Higher Education
margins.
Operating and administrative expenses increased 6% over last year's period or 4%
excluding foreign currency effects. The increase was primarily due to employment
related costs, which affected both shared services and operating costs. In
addition, shared services costs associated with Sarbanes Oxley legislation
compliance of approximately $2.3 million was partially offset by incentive
receipts associated with the Company's corporate office relocation to Hoboken,
N.J. in August 2003.
Operating income for the first nine month of fiscal 2005 was $121.3 million
period compared to $113.9 million in the prior year period, up 7% or 4%
excluding foreign currency effects. Interest Expense increased $1.0 million
mainly due to interest expense on a foreign tax settlement and higher borrowing
rates partially reduced by lower debt outstanding.
The Company's effective tax rates for the first nine-month of fiscal 2005 and
2004 were 32.1% and 28.9%, respectively. In the third quarter of fiscal year
2004 the Company reported a net tax benefit of $3.0 million or $0.05 a share
related to the resolution of certain federal and state tax matters and an
adjustment to accrued foreign taxes. Excluding the net tax benefit, the
effective tax rate for the first nine-months of fiscal year 2004 was 31.6%. The
Company's increase was mainly due to a reduction of certain U.S. and foreign tax
deductions.
SEGMENT RESULTS
Professional/Trade (P/T)
- ------------------------
U.S. P/T revenue for the first nine months of fiscal year 2005 was $256.8
million compared to $247.3 million in the prior year. Revenue generated through
brand licensing, the sale of rights and online advertising, improved sales
returns, and strong sales of consumer For Dummies books, the professional
culinary program and Webster's New World Dictionary contributed to the
improvement over prior year. Direct contribution to profit increased 9% for the
nine months. Direct contribution margin of 28.3% increased over the prior year
period mainly due to lower provisions as a result of improved inventory
management and a decrease in author advance provisions mainly due to improved
sales.
Scientific, Technical and Medical (STM)
- ---------------------------------------
U.S. STM revenue for the first nine months of fiscal year 2005 increased 7% to
$136.1 million. Journal performance was strong, up approximately 10% over prior
year with new society journals contributing significantly to the growth. STM
books also contributed to the growth with year-to-date revenues up approximately
5% over prior year. The direct contribution margin was 45.8% for the first nine
months of fiscal year 2005 compared to 48.0% in the prior year reflecting
additional expenses associated with new society journals and other product mix.
Globally, STM revenue for the first nine months of fiscal year 2005 increased
approximately 10% over the prior year period.
Higher Education
- ----------------
U.S. Higher Education revenue for the first nine months of fiscal year 2005 was
$131.3 million compared to $132.3 million in the prior year. Softness in
engineering, computer science, business and accounting programs were partially
offset by improved sales returns. Market conditions continue to be difficult due
to student concerns regarding the price/value of college textbooks and related
materials. The direct contribution to profit declined $2.8 million reflecting
lower sales, higher composition costs and higher inventory provisions. The
contribution margin for the first nine months of fiscal year 2005 decreased to
33.2% from 35.1% in the prior year period.
Europe
- ------
For the first nine months of the year, Wiley Europe's revenue of $194 million
was up 14% or 8% excluding foreign currency effects. Worldwide STM journal and
book growth combined with higher sales of imported and indigenous P/T titles
contributed to the year-to-date improvement. Excluding foreign exchange, the
contribution margin improved to 31.6% for the first nine months of fiscal year
2005, principally due to product mix from higher journal revenue.
Asia, Australia & Canada
- ------------------------
For the nine-month period, revenue increased 8% or 4% excluding foreign currency
gains, mainly due to continued improvement in the STM & P/T book programs in
Asia and in School and Higher Education programs in Australia. Contribution
margin decreased to 24.3% from 24.8%. Excluding foreign currency gains, the
contribution margin decreased to 23.2% compared to 24.8% in the prior year,
principally due to product mix.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities for the first nine months of fiscal year
2005 improved $14.9 million versus the same period last year due to higher
journal subscription collections, improved trade receivable collections, and
effective inventory management, partly offset by the higher author royalty
payments and the timing of prepaid expenses. In addition, higher fiscal year
2004 annual incentive compensation payments, paid in fiscal year 2005, were
partially offset by lower pension contributions.
Investing activities used $76.9 million for the first nine months of fiscal year
2005 as compared to $65.2 million in the prior year period. Investing activities
in the current nine-month period include $45.3 million for product development
and $18.0 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 $65.0 million and $30.0 million,
respectively. During the first nine months of fiscal year 2005, the Company
acquired publishing rights to a controlled circulation journal, The Journal of
Microscopy and Analysis, for $5.4 million and rights to the reference portfolio
of the MacMillan Nature Publishing Group for $4.5 million.
Current year financing activities include the continuation of the Company's
stock repurchase program. During the third quarter and nine-month periods ending
January 31, 2005, the Company purchased 444,300 and 1,403,500 common shares of
its capital stock at an average price of $33.22 and $32.36 per share,
respectively. On February 4, 2005, Wiley repurchased one million shares of its
Class A stock at a price of $32.45 per share. See Note 11 for further
discussion.
Under the current stock repurchase program, the Company has remaining
authorization to purchase up to 2.6 million shares of its Class A common stock.
The Company paid quarterly dividends to shareholders of $0.075 per share versus
$0.065 per share in the prior year. The Company was able to execute the stock
repurchases, dividend payments and the capital investments without any
additional drawings on the revolving credit facility. During the same period
last year the Company had repaid net borrowings of $35 million.
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
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 cash in excess of operating
requirements, in conjunction with a possible refinancing of all or a portion of
the existing term loan and revolving credit facility, to repay outstanding
principal on or before final maturity.
"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; (viii) the Company's ability to
protect its copyright and other intellectual property worldwide, and (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 nine months of fiscal
year 2005.
Interest Rates
The Company did not use any derivative financial investments to manage this
exposure. The average interest rate as of January 31, 2005 was approximately
3.31%. 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 customer 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.
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 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.
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.
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 17,
2004.
i. Earnings release on the first quarter fiscal 2005 results issued
on form 8-K dated September 1, 2004, which include the condensed
financial statements of the Company.
ii. Earnings release on the second quarter fiscal 2005 results issued
on form 8-K dated December 1, 2004, which include the condensed
financial statements of the Company.
iii. Earnings release on the third quarter fiscal 2005 results issued
on form 8-K dated March 4, 2005, 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 17,
2004.
i. Announcement of a Stock Repurchase agreement from a large
shareholder on form 8-K dated January 14, 2005.
ii. Announcement of the retirement of a non-executive director on
form 8-K dated January 19, 2005.
iii. Announcement of the retirement of a non-executive director on
form 8-K dated March 02, 2005.
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 10, 2005
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 10, 2005
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 10, 2005
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, 2005 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 10, 2005
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, 2005 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 10, 2005