-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G0OnVHyeEpOgDL1NJIXLfjygTdAp8SWCGwI6XW+kS70aYsiWATZRK3+y27H4qyX1 pZ0V4MY1jD0iJRCgx/7TkQ== 0000107140-02-000018.txt : 20020916 0000107140-02-000018.hdr.sgml : 20020916 20020916151009 ACCESSION NUMBER: 0000107140-02-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20020916 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILEY JOHN & SONS INC CENTRAL INDEX KEY: 0000107140 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 135593032 STATE OF INCORPORATION: NY FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11507 FILM NUMBER: 02764787 BUSINESS ADDRESS: STREET 1: 605 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10158 BUSINESS PHONE: 2128506000 MAIL ADDRESS: STREET 1: 605 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10158 10-Q 1 a10q031.txt 10-Q 2003 FIRST QUARTER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT 1934 For the quarterly period ended July 31, 2002 Commission File No. 1-11507 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from to JOHN WILEY & SONS, INC. (Exact name of Registrant as specified in its charter) NEW YORK 13-5593032 - ----------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 111 RIVER STREET, HOBOKEN NJ 07030 - ---------------------------- ------------------------------------- (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (201) 748-6000 ------------------------------------- NOT APPLICABLE ----------------------------------------------------------------- Former name, former address, and former fiscal year, if changed since last report Indicate by check mark, whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares outstanding of each of the Registrant's classes of common stock as of July 31, 2002 were: Class A, par value $1.00 - 50,111,154 Class B, par value $1.00 - 11,636,664 This is the first page of a 20 page document JOHN WILEY & SONS, INC. INDEX PART I - FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements. Condensed Consolidated Statements of Financial Position - Unaudited as of July 31, 2002 and 2001, and April 30, 2002......................3 Condensed Consolidated Statements of Income - Unaudited for the Three Months ended July 31, 2002 and 2001.....................4 Condensed Consolidated Statements of Cash Flows - Unaudited for the Three Months ended July 31, 2002 and 2001....................5 Notes to Unaudited Condensed Consolidated Financial Statements......6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................12-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........16-17 Item 4. Controls and Procedures...............................................17 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K......................................17 "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995.........................18 SIGNATURES AND CERTIFICATIONS..............................................19-20 EXHIBITS 99.1 - 18 U.S.C. Section 1350 Certificate by Company Officers JOHN WILEY & SONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands)
(UNAUDITED) July 31, April 30, ------------------------------------ Assets 2002 2001 2002 ---------------- --------------- ---------------- Current Assets Cash and cash equivalents $ 9,850 6,131 $ 39,705 Accounts receivable 130,653 96,056 101,084 Taxes receivable 7,926 - 18,664 Inventories 80,051 50,611 69,799 Deferred income tax benefits 33,622 14,170 34,394 Prepaid expenses 9,111 9,217 11,613 ---------------- --------------- ---------------- Total Current Assets 271,213 176,185 275,259 Product Development Assets 57,388 42,848 63,055 Property and Equipment 95,827 53,738 72,127 Intangible Assets 471,811 281,171 464,394 Deferred income tax benefits 1,794 2,956 1,351 Other Assets 20,064 17,681 19,959 ---------------- --------------- ---------------- Total Assets $ 918,097 574,579 $ 896,145 ================ =============== ================ Liabilities & Shareholders' Equity Current Liabilities Notes payable and current portion of long-term debt $ 55,000 30,000 $ 30,000 Accounts and royalties payable 103,264 61,807 67,516 Deferred subscription revenues 82,097 76,054 125,793 Accrued income taxes 13,652 11,426 9,769 Other accrued liabilities 66,434 34,095 87,315 ---------------- --------------- ---------------- Total Current Liabilities 320,447 213,382 320,393 Long-Term Debt 235,000 65,000 235,000 Other Long-Term Liabilities 51,133 35,286 49,827 Deferred Income Taxes 14,572 21,154 14,275 Shareholders' Equity 296,945 239,757 276,650 ---------------- --------------- ---------------- Total Liabilities & Shareholders' Equity $ 918,097 574,579 $ 896,145 ================ =============== ================
The accompanying Notes are an integral part of the condensed consolidated financial statements. JOHN WILEY & SONS, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands except per share information)
Three Months Ended July 31, ----------------------------------- 2002 2001 ---------------- ---------------- Revenues $ 206,437 161,044 Costs and Expenses Cost of sales 68,721 49,928 Operating and administrative expenses 102,367 76,233 Amortization of intangibles 2,176 4,346 Unusual Item - Relocation related expenses 2,465 - ---------------- ---------------- Total Costs and Expenses 175,729 130,507 ---------------- ---------------- Operating Income 30,708 30,537 Interest Income and Other 293 439 Interest Expense (2,030) (1,143) ---------------- ---------------- Interest Expense - Net (1,737) (704) ---------------- ---------------- Income Before Taxes 28,971 29,833 Provision For Income Taxes 8,941 10,292 ---------------- ---------------- Net Income $ 20,030 19,541 ================ ================ Income Per Share Diluted $ .32 .31 Basic $ .32 .32 Cash Dividends Per Share Class A Common $ .05 .05 Class B Common $ .05 .05 Average Shares Diluted 63,573 63,075 Basic 61,658 60,589
The accompanying Notes are an integral part of the condensed consolidated financial statements. JOHN WILEY & SONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED (In thousands)
Three Months Ended July 31, ----------------------------------------- 2002 2001 ---------------- -------------- Operating Activities Net income $ 20,030 19,541 Non-cash items Amortization of Intangibles 2,176 4,346 Amortization of Composition Costs 7,113 5,369 Depreciation of Property and Equipment 4,219 3,626 Other non-cash items 18,207 7,904 Net change in operating assets and liabilities (59,347) (70,501) ---------------- -------------- Cash Used for Operating Activities (7,602) (29,715) ---------------- -------------- Investing Activities Additions to product development assets (9,181) (8,798) Additions to property and equipment (25,510) (5,201) Acquisition of publishing assets (7,812) (2,062) ---------------- -------------- Cash Used for Investing Activities (42,503) (16,061) ---------------- -------------- Financing Activities Net borrowings of short-term debt 25,000 - Purchase of treasury shares (3,531) (1,543) Cash dividends (3,094) (2,738) Proceeds from exercise of stock options 1,125 1,931 ---------------- -------------- Cash Provided By (Used for) Financing Activities 19,500 (2,350) ---------------- -------------- Effects of Exchange Rate Changes on Cash 750 1,310 ---------------- -------------- Cash and Cash Equivalents Decrease for Period (29,855) (46,816) Balance at Beginning of Period 39,705 52,947 ---------------- -------------- Balance at End of Period $ 9,850 6,131 ================ ============== Cash Paid/(Refunded) During the Period for Interest $ 5,394 1,518 Income taxes $ (6,594) 3,587
The accompanying Notes are an integral part of the condensed consolidated financial statements. JOHN WILEY & SONS, INC., AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's consolidated financial position as of July 31, 2002 and 2001, and April 30, 2002, and results of operations and cash flows for the periods ended July 31, 2002 and 2001. The results for the three months ended July 31, 2002 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the most recent audited financial statements contained in the Company's Form 10-K for the fiscal year ended April 30, 2002. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified for comparability purposes. 2. Comprehensive income was as follows:
Three Months Ended July 31, -------------------------- 2002 2001 ----------- ------------ (thousands) Net Income $20,030 19,541 Other Comprehensive Income (Loss) - Transition adjustment for cash flow hedges as of May 1, 2001 - (583) Current period change in fair value of cash flow hedges 168 (15) Foreign currency translation adjustments 2,836 557 ----------- ------------ Comprehensive Income $23,034 19,500 ----------- ------------
A reconciliation of accumulated other comprehensive gain (loss) follows:
Three Months Ended July 31, 2002 ------------------------------------------------------ (thousands) Foreign Cash Currency Flow Translation Hedges Total ---------------- ------------- -------------- Beginning Balance $ (2,534) (168) (2,702) Change for period 2,836 168 3,004 ---------------- ------------- -------------- Ending Balance $ 302 - 302 ---------------- ------------- --------------
3. A reconciliation of the shares used in the computation of income per share follows:
Three Months Ended July 31, ----------------------------------------- 2002 2001 ------------------ ------------------ (thousands) Weighted average shares outstanding 61,822 60,846 Less: Unearned deferred compensation shares (164) (257) ------------------ ------------------ Shares used for basic income per share 61,658 60,589 Dilutive effect of stock options and other stock awards 1,915 2,486 ------------------ ------------------ Shares used for diluted income per share 63,573 63,075 ------------------ ------------------
4. Inventories were as follows:
July 31, April 30, -------------------------------- 2002 2001 2002 -------------- -------------- ------------- (thousands) Finished goods $69,105 46,413 $62,756 Work-in-process 7,710 4,293 6,845 Paper, cloth and other 6,949 3,396 3,811 -------------- -------------- ------------- 83,764 54,102 73,412 LIFO reserve (3,713) (3,491) (3,613) -------------- -------------- ------------- Total inventories $80,051 50,611 $69,799 -------------- -------------- -------------
5. The Company is a global publisher of print and electronic products, providing must-have content and services to customers worldwide. Core businesses include professional and consumer books and subscription services; scientific, technical, and medical journals, encyclopedias, books and online products and services; and educational materials for undergraduate and graduate students and lifelong learners. The Company has publishing, marketing, and distribution centers in the United States, Canada, Europe, Asia, and Australia. The Company's reportable segments are based on the management reporting structure used to evaluate performance. Segment information is as follows:
Three Months Ended July 31, ----------------------------------------------------------------------------------- 2002 2001 ----------------------------------------- -------------------------------------- (thousands) Inter- Inter- Revenues External segment External segment - -------- Customers Sales Total Customers Sales Total -------------- ------------- ------------ ------------- ----------- ------------ U.S. Segments: Professional/Trade $63,397 6,784 70,181 $35,769 3,587 39,356 Scientific, Technical, and Medical 40,638 1,819 42,457 38,554 1,562 40,116 Higher Education 38,047 6,868 44,915 36,394 5,940 42,334 European Segment 43,432 4,460 47,892 34,389 3,366 37,755 Other Segment 20,923 237 21,160 15,938 219 16,157 Eliminations - (20,168) (20,168) - (14,674) (14,674) -------------- ------------- ------------ ------------- ----------- ------------ Total Revenues $206,437 - 206,437 $161,044 - 161,044 -------------- ------------- ------------ ------------- ----------- ------------ Direct Contribution to Profit - ----------------------------- U.S. Segments: Professional/Trade $14,292 $7,264 Scientific, Technical, and Medical 20,317 17,939 Higher Education 18,158 17,117 European Segment 16,036 13,350 Other Segment 3,612 3,420 ------------ ------------ Total Direct Contribution to Profit 72,415 59,090 Shared Services and Administrative Costs Distribution (11,054) (6,958) Information Technology (8,522) (6,860) Finance (7,367) (4,822) Other Administration (12,299) (9,913) ------------ ------------ Total Shared Services and Administration Costs (39,242) (28,553) Unusual Items - Relocation Expenses (2,465) - ------------ ------------ Operating Income 30,708 30,537 Interest Expense - Net (1,737) (704) ------------ ------------ Income Before Taxes $28,971 $29,833 ------------ ------------
6. Acquisitions In the first quarter of fiscal year 2003 the Company made three acquisitions totaling approximately $7.8 million including a $6.5 million acquisition of teacher education titles from Prentice Hall Direct/Pearson Education. In September 2001, the Company acquired 100% of the outstanding shares of Hungry Minds, Inc. (Hungry Minds) for a total purchase price of approximately $184.9 million, consisting of approximately $90.2 million in cash for the common stock of Hungry Minds, $92.5 million in cash to enable Hungry Minds to repay its outstanding debt, and fees and expenses of approximately $2.2 million. The acquisition including 2,500 active titles which are available in 39 languages. Well-know brands include the For Dummies and Unofficial Guide series, the technological Bible and Visual series, Frommer's travel guides, CliffsNotes, Webster's New World Dictionary, Betty Crocker, and Weight Watchers. In fiscal year 2002, the Company also acquired four other businesses for purchase prices aggregating $35.1 million. These included: A&M Publishing Ltd., a U.K.-based publisher for the pharmaceutical and health care sectors, GIT Verlag GmbH, a German publisher for the chemical, pharmaceutical, biotechnology, security and engineering industries; and Frank J. Fabozzi Publishing and an Australian publisher, Wrightbooks Pty Ltd., both publishing high-quality finance books for the professional market. 7. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for by a single method - the purchase method. In addition, the statement requires the purchase price to be allocated to identifiable intangible assets in addition to goodwill if certain criteria are met. On May 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the requirement to amortize goodwill and those intangible assets that have indefinite useful lives, but requires an annual test for impairment or more frequently if impairment indicators arise. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. The Company completed the initial evaluation and assessment of its goodwill and other intangible assets in accordance with SFAS 142. No impairment charge was required. The following table represents unaudited adjusted results of operations of the Company, giving effect to SFAS No. 142 as if it were adopted on May 1, 2001:
Three Months Ended July 31, ------------------------------------------- 2002 2001 ----------------- ------------------ (thousands) Net income, as reported $20,030 19,541 Add back: amortization expense net of tax Indefinite lived intangibles - 1,001 Goodwill - 970 ----------------- ------------------ Adjusted net income $20,030 21,512 Income per Diluted Share: As reported $0.32 0.31 Adjusted $0.32 0.34 Income per Basic Share: As reported $0.32 0.32 Adjusted $0.32 0.36
The following table summarizes the activity in goodwill by segment (in thousands):
Cummulative As of Acquisitions & Translation & As of April 30, 2002 Dispositions Other Adjustments July 31, 2002 -------------------- ------------------ ------------------ ------------------- Professional/Trade $146,191 - (573) 145,618 Scientific, Technical and Medical 23,193 - - 23,193 European 18,010 - 1,957 19,967 Other 1,705 - 18 1,723 -------------------- ------------------ ----------------- ------------------ Total $189,099 - 1,402 190,501
The following table summarizes the activity in other intangibles subject to amortization (in thousands):
As of As of July 31, 2002 April 30, 2002 ------------------- ----------------- Acquired publication rights $150,971 263,392 Accumulated amortization (35,447) (57,815) ------------------- ----------------- Net acquired publication rights 115,524 205,577 Covenants not to compete 1,040 1,257 Accumulated amortization (686) (937) ------------------- ----------------- Net covenants not to compete 354 320 ------------------- ----------------- Total $115,878 205,897 =================== =================
The following table summarizes other intangibles not subject to amortization (in thousands):
As of As of July 31, 2002 April 30, 2002 ------------------------ --------------------- Acquired publication rights $107,532 11,498 Branded trademarks 57,900 57,900 ------------------------ --------------------- $165,432 69,398 ======================== =====================
The Company recorded amortization expense of $2.2 million for the three months ended July 31, 2002 and $2.0 million on an adjusted basis for the three months ended July 31, 2001. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding 5 years are as follows: Fiscal 2003 $8.6 million; 2004 $8.4 million; 2005 $8.3 million, 2006 $8.0 million and 2007 $7.9 million. As acquisitions and dispositions occur in the future and as purchase price allocations are finalized, these amounts may vary. 8. Recent Accounting Standards In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard is effective for fiscal year 2004. The adoption of SFAS No. 143 is not expected to have a material impact on the Company's financial position or results of operations. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard is effective for fiscal year 2003. The adoption of SFAS No. 144 had no effect on the Company's financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement 146, which is effective prospectively for exit or disposal activities initiated after December 31, 2002, applies to costs associated with an exit activity, including restructurings, or with a disposal of long-lived assets. SFAS 146 requires that exit or disposal costs are recorded as an operating expense when the liability is incurred and can be measured at fair value. The adoption of SFAS 146 is not expected to have a material effect on the Company's financial position or results of operations. 9. Unusual Item The first quarter fiscal 2003 results include an unusual charge of approximately $2.5 million, or $1.5 million after taxes, equal to $0.02 per diluted and basic share relating to the relocation of the Company's headquarters to Hoboken, New Jersey from New York City, and includes duplicate rent payments and moving expenses. In fourth quarter of fiscal year 2002, the Company reported an unusual charge of $12.3 million or $7.7 million after tax related to the relocation, including lease payments of approximately $10.2 million on the vacated premises. Included in the balance sheet at July 31, 2002 are accrued expenses of $11.3 million principally related to lease payments on the vacated offices in New York City. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FIRST QUARTER ENDED JULY 31, 2002 Net income increased 10% to $21.5 million or $0.34 per diluted share, for the quarter, excluding $1.5 million of unusual charges related to the relocation of the company's headquarters and including the effect of the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 compared with $19.5 million or $0.31 per diluted share in the first quarter last year. Including the unusual charges, net income in the first quarter of 2003 increased 3% to $20.0 million or $0.32 per diluted share, as compared to the prior year's quarter. Revenues for the first quarter of 2003 of $206.4 million increased 28%, from $161.0 million in the prior year's quarter. The first quarter revenue increase was due to the combined effects of contributions from acquisitions, most notably Hungry Minds, and organic growth. Excluding Hungry Minds, revenues for the quarter were up 8% over the prior year. In the first quarter, cost of sales and operating and administrative expenses increased by 38% and 34%, respectively. These increases were primarily due to the addition of Hungry Minds. In addition, the increase in operating and administrative expenses was due to incremental costs related to other acquisitions and foreign currency translation effects. Operating income for the current quarter, excluding relocation expenses, increased 9% to $33.2 million, compared to $30.5 million in the prior year. Including the relocation charge, operating income increase 1% to $30.7 million. Pro forma results of operations for the first quarter excluding the unusual relocation charges were as follows:
Three Months Ended July 31, ---------------------------------------- 2002 2001 ----------------- ------------------ (thousands) Operating income as reported $30,708 30,537 Unusual relocation charge 2,465 - ----------------- ------------------ Operating income before unusual charge $33,173 30,537 ================= ================== Net income as reported $20,030 19,541 Unusual relocation charge, net of taxes 1,479 - ----------------- ------------------ Net income before unusual charge $21,509 19,541 ================= ================== Income per diluted share as reported $.32 .31 Unusual relocation charge, net of taxes .02 - ----------------- ------------------ Income per diluted share before unusual charge $.34 .31 ================= ==================
The effective tax rate was 30.9% in the current quarter, compared with 34.5% in the prior year's quarter and 29.3% in the full fiscal year 2002. The decrease from the prior years first quarter was principally due to lower foreign and state taxes. In addition, the absence of nondeductible goodwill amortization related to the adoption of SFAS No. 142 reduced the effective tax rate for the quarter. In the first quarter, the Company adopted SFAS No. 142, which eliminates the amortization of goodwill and indefinite lived intangible assets. The after-tax impact of SFAS No. 142 was $2.0 million, or 3 cents per diluted share for the quarter. SEGMENT RESULTS Professional/Trade U.S. Professional/Trade revenues of $70.2 million for the first quarter advanced 78% over the comparable prior year period, and the direct contribution to profit advanced 97% to $14.3 million. The increase was principally attributable to Hungry Minds, which was acquired in the second quarter of the prior year. All areas of the Professional/Trade business performed well, particularly consumer, culinary, reference, and travel, led by the Company's For Dummies, Webster's New World, Betty Crocker, and Frommer's brands. The direct contribution margin increased to 20.4% from 18.5% in the prior year principally due to product mix. The travel program continued its strong recovery from the post-September 11th slowdown. A redesigned frommers.com site, launched in June, handled record traffic and book sales in July. During the quarter, England For Dummies won a Lowell Thomas Award, considered by many to be the most prestigious award in travel publishing. Sales of the teacher education titles that Wiley acquired in late May from Prentice Hall-Direct/Pearson Education exceeded the Company's expectations. The combination of these titles with Wiley's strong education list, sold under the Jossey-Bass brand, has created a formidable presence for the Company in this category. While the business book marketplace is struggling to regain momentum, Wiley's program fared well in the quarter with several best-selling frontlist titles, including Prechter/Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression (a Wiley Europe title); Weiss/Ultimate Safe Money Guide; Byron/Martha Inc.; and Lencioni/Five Dysfunctions of A Team: A Leadership Fable. During the quarter, Wiley published the first book in the marketplace on the demise of Enron, Fusaro and Miller/What Went Wrong at Enron. In August, the Company licensed its BoldIdeas online business journal collection to ProQuest's ABI/INFORM(R) database for distribution to educational institutions, libraries, and other markets worldwide. Wiley's technology publishing continued to improve its competitive position. The bright spots were in the consumer technology areas, including digital photography, digital imaging software, general PC technology, Windows XP, home networking, and eBay-related books. During the quarter, the Company signed a licensing agreement with Gemini Industries USA to extend its For Dummies brand into a new range of computer, home electronics, telephone, and gaming consumer technology products. In addition, a co-marketing/co-branding agreement was executed with Seybold Seminars and Publications for Wiley's Complete Course series. Scientific, Technical And Medical (STM) U.S. STM revenues of $42.5 million increased 6% over the prior year driven by the strong performance of the journals program (including a substantial subscription order from China), the positive effect of both new and renewed Wiley InterScience licenses, the renewal of publishing agreements for two society journals, and new products. The direct contribution to profit increased 13% to $20.3 from $17.9 million due to the same effects. The direct contribution margin improved to 47.9% in the current quarter compared with 44.7% in the prior year, as a result of improved journal margins. Wiley InterScience continued to evolve as a global enterprise with its growth reflecting the research community's need for quality content, when and where they want it. Over the past year, the online service experienced a significant increase in the number of journal articles viewed with 73% growth from the prior year's quarter. Approximately 60% of Global STM journals are now licensed under Wiley InterScience. Several licenses were signed, including Takeda Chemical Industries and Sankyo Pharmaceutical in Japan; the Helmholtz Institute and the Max Planck Institute in Germany; and the University of Queensland in Australia. The growth in usage also reflects the value to customers of linking agreements with third party providers. The reference links between Wiley InterScience and the American Chemical Society's Chemport went live during the quarter, enhancing efficiencies in the research process for chemists worldwide. By the end of the quarter, OnlineBooks offered customers nearly 300 titles. In the May 1, 2002 issue of Library Journal, Ed Sugrue of the Harvard University Libraries described OnlineBooks as, "An extremely user-friendly, highly effective means of organizing what until now has been exclusively print material .. . . The service as a whole is excellent; unreservedly recommended for academic, large public and scientific research libraries." During the quarter, Wiley successfully launched the online edition of Current Protocols in Bioinformatics. The editors are Dr. Dan Davison (Bristol-Myers Squibb) and Dr. Andy Baxevanis, a bioinformatics expert based at the National Institutes of Health, and co-founder of the new International Genomics Consortium. The Company continued to build its society journal publishing business with the renewal of the agreement with the American Association of Clinical Anatomists and the British Association of Clinical Anatomists to publish their jointly-owned journal, Clinical Anatomy, as well as the renewal of the affiliation agreement with the Academy for Eating Disorders to publish International Journal of Eating Disorders. The American Peptide Society has adopted the Wiley journal, Biopolymers - Peptide Science, as its official journal. Higher Education U.S. Higher Education revenues of $44.9 million increased 6% for the quarter from the prior year. The direct contribution to profit increased 6% to $18.2 million. Fueling this increase were sales of new editions of key titles including Tortora/Principles of Anatomy and Physiology; Hughes-Hallett/Calculus; Musser/Math for Teachers; and Weygandt/Financial Accounting; as well as the titles acquired from Thomson Learning in November of last year. The acquisition of Fitzgerald Publishing Co., a small Company specializing in the life sciences, was completed during the first quarter. The acquisition brings to Wiley a microbiology textbook by Abigail Salyers, a prominent microbiologist at the University of Illinois-Urbana and president of the American Society of Microbiology. Also notable are two new titles that will be published by Wiley's STM group: a revision of a successful Brain Atlas by Hanaway, Woolsey et al, and a new book on Evolutionary Psychology by Rossano, Hanaway, Woolsey et al. During the quarter, an initiative was launched to offer access to STM's online Encyclopedia for Electrical and Electronic Engineering to students who purchase selected Higher Education textbooks in electrical engineering. This program will provide motivation to students and faculty to adopt and purchase Wiley textbooks, as well as enhance the visibility of the online encyclopedia. Europe European segment revenues of $47.9 million advanced 27% over the prior year's first quarter. The revenue growth was driven by the success of its Prechter/Conquer the Crash title; good results by journals, STM books, and Higher Education programs; and better-than-expected results from recent acquisitions. Two key titles, both authored by senior engineers at top telecom corporations, Tachikawa/W-CDMA and Holma/W-CDMA for UMTS, published successfully during the quarter. The direct contribution to profit of $16.0 million was 20% over the prior year. The direct contribution margin was 33.5% in the current period compared with 35.4% in the prior year mainly due to product mix. We made progress in building Wiley's society journal publishing business in Europe, with the signing of an agreement with The International Society for Ultrasound in Obstetrics and Gynecology to publish Ultrasound in Obstetrics and Gynecology, as well as the Associazone Elettrotecnica Italiana to publish European Transactions in Telecommunications. In July, Wiley Europe published the first issue of Pharmaceutical Statistics in collaboration with the Association of Statisticians in the Pharmaceutical Industry. Wiley's operations in Weinheim, Germany were relocated to new offices at the beginning of the quarter, and its operations in Chichester, United Kingdom were relocated to a new building in late August. Other Segment The other segment revenues advanced 31% for the quarter. In Asia, we achieved good results in Singapore, Hong Kong, India, and China. Singapore and Hong Kong appear to be recovering from the weak market conditions that prevailed throughout most of the previous year. Book sales in China continue to grow. Throughout Asia, Wiley's subscription and translation rights businesses continued to perform impressively. Our translation rights business in China continued to grow at a rapid pace with 85 titles signed in the first quarter, double the number of titles signed during the same period last year. Wiley Australia successfully launched Voila, its new high school French program, in July. Shared Services and Administrative Costs Shared services and administrative costs increased $10.7 million to $39.2 million over the prior years first quarter mainly due to Hungry Minds and other acquisitions and the impact of foreign currency exchange rates. LIQUIDITY AND CAPITAL RESOURCES Operating activities used $7.6 million of cash, or $22.1 million less than the prior year's comparable period. The increase was primarily due to higher non cash expenditures for author royalty advances earned, improved trade receivable collections, and increased accounts payable from relocation expenditures. The use of cash during this period is consistent with the seasonality of the journal subscription business and the educational segment's receipt cycle that occurs, for the most part, later in the fiscal year. Investing activities used $42.5 million during the current quarter, or $26.4 million more than the comparable prior year period. Investing activities in the current period included the acquisition of titles from Prentice Hall Direct/Pearson Education for $6.5 million and capital expenditures, amounting to approximately $23 million, for the purchase of a building in the United Kingdom and leasehold improvements at the Company's new Hoboken, NJ headquarters. Current year financing activities primarily reflect the purchase of treasury shares, dividend payments, and borrowings of $25.0 million from our line of credit to finance the investing activities. Although the statement of financial condition indicates a negative working capital of $49.2 million, current liabilities include $82.1 million of deferred income related to journal subscriptions for which the cash has been received and which will be recognized in income as the journals are delivered to customers. The Company believes its cash balances together with existing credit facilities are sufficient to meet its obligations. The Company had $290.0 million of variable rate loans outstanding at July 31, 2002, which approximated fair value. The Company had $125.0 million available under its revolving credit facilities at July 31, 2002. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The Company is exposed to market risk primarily related to interest rates, foreign exchange and credit risk. It is the Company's policy to monitor these exposures and to use derivative financial instruments and/or insurance contracts from time to time to reduce fluctuations in earning and cash flows when it is deemed appropriate to do so. The Company does not use derivative financial investments for trading or speculative purposes. Interest Rates The Company did not use any derivative financial investments to manage this exposure. The weighted average interest rate as of July 31, 2002 was approximately 2.61%. A hypothetical 1% change in interest rates for the variable rate debt would affect annual net income and cash flow by approximately $1.3 million. Foreign Exchange Rates The Company is exposed to foreign currency exchange movements primarily in European, Asian, Canadian and Australian currencies. Consequently, the Company and its subsidiaries, from time to time, enter into foreign exchange forward contracts as a hedge against foreign currency asset, liability, commitment, and anticipated transaction exposures, including intercompany purchases. The Company does not use derivative financial instruments for trading or speculative purposes. Credit Risk The Company's business is not dependent upon a single customer; however, the industry has experienced a significant concentration in national, regional, and online bookstore chains in recent years. Although no one book customer accounts for more than 8% of total fiscal 2002 consolidated revenues, the top ten book customers account for approximately 31% of total fiscal 2002 consolidated revenues and approximately 48% of total gross trade accounts receivable at April 30, 2002. To mitigate its credit risk exposure, the Company obtains credit insurance where available and economically justifiable. In the journal publishing business, subscriptions are primarily sourced through independent subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Monies are generally collected in advance from subscribers by the subscription agents and are remitted to the journal publisher, including the Company, generally prior to the commencement of the subscriptions. Although at fiscal year-end the Company had minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 25% of total fiscal 2002 consolidated revenues and no one agent accounts for more than 7% of total fiscal 2002 consolidated revenues. Insurance for these accounts is not commercially feasible and/or available. ITEM 4. CONTROLS AND PROCEDURES There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Accordingly, no corrective actions were required or undertaken. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 - 18 U.S.C. Section 1350 Certificate by Company Officers (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended July 31, 2002. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 This report contains certain forward-looking statements concerning the Company's operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements. Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company's journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key online retailers; (vi) the seasonal nature of the Company's educational business and the impact of the used book market; (vii) worldwide economic and political conditions; and (viii) other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized JOHN WILEY & SONS, INC. Registrant By /s/ William J. Pesce ----------------------- William J. Pesce President and Chief Executive Officer By /s/ Ellis E. Cousens ----------------------- Ellis E. Cousens Executive Vice President and Chief Financial & Operations Officer By /s/ Edward J. Melando ----------------------- Edward J. Melando Vice President, Controller and Chief Accounting Officer Dated: September 16, 2002 CERTIFICATIONS I, William J. Pesce, certify that: - - I have reviewed this quarterly report on Form 10-Q of John Wiley & Sons, Inc.; - - Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and - - Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. By /s/ William J. Pesce ----------------------- William J. Pesce President and Chief Executive Officer Dated: September 16, 2002 I, Ellis E. Cousens, certify that - - I have reviewed this quarterly report on Form 10-Q of John Wiley & Sons, Inc.; - - Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and - - Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. By /s/ Ellis E. Cousens ----------------------- Ellis E. Cousens Executive Vice President and Chief Financial & Operations Officer Dated: September 16, 2002 Exhibit 99.01 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of John Wiley & Sons, Inc. (the "Company") on Form 10-Q for the period ending July 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William J. Pesce, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934 (as amended), as applicable; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/William J. Pesce William J. Pesce President and Chief Executive Officer September 16, 2002 In connection with the Quarterly Report of John Wiley & Sons, Inc. (the "Company") on Form 10-Q for the period ending July 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ellis E. Cousens, Executive Vice President and Chief Financial & Operations Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934 (as amended), as applicable; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/Ellis E. Cousens Ellis E. Cousens Executive Vice President and Chief Financial & Operations Officer September 16, 2002 -----END PRIVACY-ENHANCED MESSAGE-----