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, 2001 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)
605 THIRD AVENUE, NEW YORK, NY 10158-0012
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (212) 850-6000
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, 2001 were:
Class A, par value $1.00 - 49,411,732
Class B, par value $1.00 - 11,660,964
This is the first page of a 17 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, 2001 and 2000 and April 30, 2001......................3
Condensed Consolidated Statements of Income - Unaudited
for the Three Months ended July 31, 2001 and 2000....................4
Condensed Consolidated Statements of Cash Flow - Unaudited
for the Three Months ended July 31, 2001 and 2000 ................5
Notes to Unaudited Condensed Consolidated Financial Statements .6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................11-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 14-15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................15
"Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995.........................16
SIGNATURES................................................................... 17
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
July 31, April 30,
------------------------------------
Assets 2001 2000 2001
---------------- --------------- ----------------
Current Assets
Cash and cash equivalents $ 6,131 11,359 $ 52,947
Accounts receivable 96,056 91,050 62,514
Inventories 50,611 47,947 50,763
Deferred income tax benefits 14,170 12,215 13,331
Prepaid expenses 9,217 8,502 9,980
---------------- --------------- ----------------
Total Current Assets 176,185 171,073 189,535
Product Development Assets 42,848 39,741 41,191
Property and Equipment 53,738 37,645 52,255
Intangible Assets 281,171 293,854 283,761
Deferred income tax benefits 2,956 3,756 3,380
Other Assets 17,681 15,273 17,880
---------------- --------------- ----------------
Total Assets $ 574,579 561,342 $ 588,002
================ =============== ================
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable and current portion of long-term debt $ 30,000 32,960 $ 30,000
Accounts and royalties payable 61,807 67,037 42,520
Deferred subscription revenues 76,054 72,839 117,103
Accrued income taxes 11,426 12,112 9,586
Other accrued liabilities 34,095 47,531 47,552
---------------- --------------- ----------------
Total Current Liabilities 213,382 232,479 246,761
Long-Term Debt 65,000 95,000 65,000
Other Long-Term Liabilities 35,286 33,310 34,901
Deferred Income Taxes 21,154 14,293 21,317
Shareholders' Equity 239,757 186,260 220,023
---------------- --------------- ----------------
Total Liabilities & Shareholders' Equity $ 574,579 561,342 $ 588,002
================ =============== ================
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,
-----------------------------------
2001 2000
---------------- ----------------
Revenues $ 161,044 153,928
Costs and Expenses
Cost of sales 49,928 49,167
Operating and administrative expenses 76,233 72,674
Amortization of intangibles 4,346 4,144
---------------- ----------------
Total Costs and Expenses 130,507 125,985
---------------- ----------------
Operating Income 30,537 27,943
Interest Income and Other 439 526
Interest Expense (1,143) (2,111)
---------------- ----------------
Interest Expense - Net (704) (1,585)
---------------- ----------------
Income Before Taxes 29,833 26,358
Provision For Income Taxes 10,292 9,884
---------------- ----------------
Net Income $ 19,541 16,474
================ ================
Income Per Share
Diluted $ .31 .26
Basic $ .32 .27
Cash Dividends Per Share
Class A Common $ .05 .04
Class B Common $ .05 .04
Average Shares
Diluted 63,075 63,475
Basic 60,589 60,489
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,
------------------------------------
2001 2000
------------- ------------
Operating Activities
Net income $ 19,541 16,474
Non-cash items
Amortization of Intangibles 4,346 4,144
Amortization of Composition Costs 5,369 5,526
Depreciation of Property and Equipment 3,626 2,966
Other non-cash items 7,904 7,818
Net change in operating assets and liabilities (70,501) (53,994)
------------- -----------
Cash Used for Operating Activities (29,715) (17,066)
------------- -----------
Investing Activities
Additions to product development assets (8,798) (7,971)
Additions to property and equipment (5,201) (2,556)
Proceeds from sale of publishing assets - 2,500
Acquisition of publishing assets (2,062) (4,116)
------------ -----------
Cash Used for Investing Activities (16,061) (12,143)
------------ -----------
Financing Activities
Purchase of treasury shares (1,543) (1,663)
Net borrowings of short-term debt - 2,960
Cash dividends (2,738) (2,421)
Proceeds from exercise of stock options 1,931 867
------------ ------------
Cash Used for Financing Activities (2,350) (257)
------------ ------------
Effects of Exchange Rate Changes on Cash 1,310 (1,474)
------------ ------------
Cash and Cash Equivalents
Decrease for Period (46,816) (30,940)
Balance at Beginning of Period 52,947 42,299
------------ ------------
Balance at End of Period $ 6,131 11,359
============ ============
Cash Paid During the Period for
Interest $ 1,518 2,721
Income taxes $ 3,587 2,068
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, 2001 and
2000, and April 30, 2001, and results of operations and cash flows for
the three month periods ended July 31, 2001 and 2000. The results for
the three months ended July 31, 2001 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, 2001.
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.
2. Certain prior year amounts have been restated to conform to the
current year's presentation including the adoption in the fourth
quarter of the prior fiscal year of the consensus of the Emerging
Issues Task Force Issue 00-10, "Accounting for Shipping and Handling
Fees and Costs" which resulted in the reclassification of shipping and
handling fee income from cost of sales and operating and
administrative expenses, where it was previously recorded, to
revenues. This reclassification had the effect of increasing revenues
and the prior year's respective expenses by $3 million in the first
quarter ended July 31, 2000, with no effect on operating income or net
income. Shipping and handling costs included in operating and
administrative expenses amounted to $1.8 and $1.7 million, in the
first quarter of fiscal year 2002 and 2001, respectively.
3. At the beginning of the current fiscal year, the Company adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and No. 138, which specifies
the accounting and disclosure requirements for such instruments. Under
the new standard, all derivatives are recognized as assets or
liabilities and measured at fair value. Derivatives that are not
determined to be effective hedges are adjusted to fair value with a
corresponding effect on earnings. Changes in the fair value of
derivatives that are designated and determined to be effective as part
of a hedge transaction will have no immediate effect on earnings and
depending on the type of hedge, are recorded either as part of other
comprehensive income and will be included in earnings in the periods
in which earnings are affected by the hedged item, or are included in
earnings as an offset to the earnings impact of the hedged item. Any
ineffective portions of hedges are reported in earnings as they occur.
The adoption of these new standards as of May 1, 2001 resulted in a
transition adjustment loss of $.5 million which is included as part of
other comprehensive income.
For a derivative to qualify as a hedge at inception and throughout the
hedged period, the Company formally documents the nature and
relationships between the hedging instruments and hedged items, as
well as its risk-management objectives, strategies for undertaking the
various hedge transactions and method of assessing hedge
effectiveness. For hedges of forecasted transactions, the significant
characteristics and expected terms of a forecasted transaction are
specifically identified, and it must be probable that each forecasted
transaction will occur. If it is deemed probable that the forecasted
transaction will not occur, the gain or loss is recognized in earnings
currently.
During the period ending July 31, 2001, there was no material
ineffectiveness related to the cash flow hedges, and the estimated
amount of gains or losses that are expected to be reclassified into
earnings over the next year are not material. The Company does not use
derivative financial instruments for trading or speculative purposes.
At July 31, 2001, the Company had open foreign exchange forward
contracts expiring through January 2003 as follows:
Currency Purchased U.S. $ Value Average Contract Rate
UK(pound) $11,844 $1.4992
Euro $ 2,300 $ .9145
The U.K. (pound) contract has been designated a cash flow hedge of
foreign currency exposures related to the payment of facility
construction commitments.
4. Comprehensive income was as follows:
Three Months
Ended July 31,
-----------------------------------
2001 2000
------------- -------------
(thousands)
Net Income 19,541 16,474
Other Comprehensive Income (Loss):
Transition adjustment for cash flow hedges as of
May 1, 2001 (454) -
Current period change in fair value of cash flow
hedges (144) -
Foreign currency translation adjustments 557 (577)
------------- -------------
Comprehensive Income 19,500 15,897
------------- -------------
A reconciliation of accumulated other comprehensive loss follows:
Three Months Ended July 31, 2001
Foreign Currency
Translation Cash Flow
Adjustments Hedges Total
Beginning Balance $ (3,117) - (3,117)
Transition adjustment - (454) (454)
Change for period 557 (144) 413
Reclassification to earnings - - -
--------------------- ------------------- ----------------
Ending Balance $ (2,560) (598) (3,158)
--------------------- ------------------- ----------------
5. In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires all business combination 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. The statement also requires additional disclosures
related to the reasons for the business combination, the allocation of
the purchase price, and if significant by reportable segment, to the
assets acquired and liabilities assumed.
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 at the reporting unit level. Intangible
assets that have finite useful lives will continue to be amortized
over their useful lives. SFAS No. 142 will be effective for the
Company's next fiscal year beginning May 1, 2002 for goodwill and
other intangible assets acquired prior to July 1, 2001, and is
effective immediately for acquisitions occurring after June 30, 2001.
The Company is in the process of evaluating and reassessing its
goodwill and other intangible assets to determine the impact of any
impairment and the related useful lives and the corresponding
amortization expense to be recorded. The Company anticipates that
substantially all amortization of goodwill as a charge to earnings
will be eliminated.
6. A reconciliation of the shares used in the computation of income per
share follows:
Three Months
Ended July 31
---------------------------------------
2001 2000
------------------ -----------------
(thousands)
Weighted average shares outstanding 60,846 60,811
Less: Unearned deferred compensation shares (257) (322)
------------------ -----------------
Shares used for basic income per share 60,589 60,489
Dilutive effect of stock options and other stock awards 2,486 2,986
------------------ -----------------
Shares used for diluted income per share 63,075 63,475
------------------ -----------------
7. Inventories were as follows:
July 31, April 30,
----------------------------------
2001 2000 2001
-------------- -------------- ---------------
(thousands)
Finished goods $46,413 42,282 $46,353
Work-in-process 4,293 2,640 4,481
Paper, cloth and other 3,396 6,464 3,020
--------------- --------------- ----------------
54,102 51,386 53,854
LIFO reserve (3,491) (3,439) (3,091)
--------------- --------------- ----------------
Total inventories $50,611 47,947 $50,763
--------------- --------------- ----------------
8. The Company is a global publisher providing must-have content and
services to customers worldwide. Core businesses include scientific,
technical, and medical journals, encyclopedias, books and online
products and services; professional and consumer books and
subscription services; and textbooks 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,
-------------------------------------------------------------------------------------
2001 2000
------------------------------------------ ---------------------------------------
(thousands)
Inter- Inter-
External segment External segment
Revenues Customers Sales Total Customers Sales Total
-------------- ------------- ------------- -------------- ------------- -------------
Domestic Segments:
Scientific, Technical, and Medical $38,554 $1,562 $40,116 $35,772 $1,687 $37,459
Professional/Trade 35,769 3,587 39,356 33,481 3,407 36,888
Higher Education 36,394 5,940 42,334 34,944 5,823 40,767
European Segment 34,389 3,366 37,755 33,793 2,640 36,433
Other Segments 15,938 219 16,157 15,938 319 16,257
Eliminations - (14,674) (14,674) - (13,876) (13,876)
-------------- ------------- ------------- -------------- ------------- ------------
Total Revenues $161,044 - $161,044 $153,928 - $153,928
-------------- ------------- ------------- -------------- ------------- ------------
Direct Contribution to Profit
Domestic Segments:
Scientific, Technical, and Medical $17,939 $16,306
Professional/Trade 7,264 6,360
Higher Education 17,117 16,608
European Segment 13,350 12,158
Other Segments 3,420 3,807
------------- ------------
Total Direct Contribution to Profit 59,090 55,239
Shared Services and Admin. Costs (28,553) (27,296)
------------- ------------
Operating Income 30,537 27,943
Interest Expense - Net (704) (1,585)
------------- ------------
Income Before Taxes $29,833 $26,358
------------- ------------
Certain prior year amounts have been reclassified to conform to the current
year's presentation, including the restatement of revenues to include shipping
and handling fee income in accordance with the new accounting standard as
outlined in note 2. Previously, such amounts were classified as offsets to cost
of sales and operating and administrative expenses.
9. On August 13, 2001, the Company announced that it had signed a definitive
agreement to acquire Hungry Minds, Inc., the publisher of the best-selling
For Dummies series, the technological Bible and Visual series, Frommer's
travel guides, CliffsNotes, Webster's New World Dictionary, and other
market-leading brands. Under the terms of the merger agreement, the Company
has agreed to pay an aggregate consideration of approximately $183 million
plus fees and expenses, consisting of $90 million for the fully diluted
equity of Hungry Minds, Inc. and an estimated $93 million of outstanding
funded debt that the Company will pay or assume at closing. The acquisition
will be accomplished via a cash tender offer at $6.09 per share by the
Company for all of Hungry Minds, Inc. outstanding stock, followed by a cash
merger. The tender offer is expected to be consummated by mid-September
2001. The acquisition is subject to regulatory clearance, Hungry Minds,
Inc. stockholder approval (if required), and customary closing conditions.
International Data Group, Inc. (IDG), which owns about 76% of Hungry Minds
Inc. outstanding stock, has agreed to support the transaction and to tender
its Hungry Minds, Inc. shares in connection with the Company's tender
offer. It is anticipated that the transaction will be financed by a new
five-year bank loan facility, and will be neutral on a cash earnings per
share basis in fiscal 2002 and accretive thereafter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During this seasonal period of cash usage, operating activities used $29.7
million of cash, or $12.6 million more than the prior year's comparable
quarter. The increase was primarily due to higher expense levels to support
the revenue growth and payments of accounts payable and accrued
liabilities. The use of cash during this period is consistent with the
seasonality of the journal business and the educational sector's receipts
cycle that occurs, for the most part, later in the fiscal year. Although
the condensed consolidated statement of financial condition indicates a
negative working capital of $37.2 million at July 31, 2001, current
liabilities include $76.1 million of deferred subscription revenues related
to journals for which the cash has been received and which will be
recognized into income as the journals are shipped or made available online
to the customer, or over the term of the subscription as services are
rendered. Excluding this deferred income item, working capital at July 31,
2001 is a positive $38.9 million
Investing activities used $16.1 million during the current quarter, or $3.9
million more than the comparable prior year's quarter primarily reflecting
higher expenditures for property and equipment related to new office
facilities.
Current year financing activities primarily reflect dividend payments,
purchase of treasury shares and proceeds from exercise of stock options. As
outlined in note 9, the Company anticipates that it will finance the
acquisition of Hungry Minds, Inc. with a new $200 million five-year bank
term loan facility. In addition, the Company anticipates obtaining an
additional $100 million five-year bank revolving credit facility to finance
working capital and other needs.
RESULTS OF OPERATIONS
FIRST QUARTER ENDED JULY 31, 2001
Revenues for the quarter of $161 million increased 6%, excluding adverse
foreign currency translation effects, or 5% including those effects.
Operating income for the current quarter increased 9% to $30.5 million,
compared with $27.9 million in the prior year period. Net income and income
per diluted share advanced 19% to $19.5 million and $.31 per share,
respectively.
Despite the economic slowdown, the Company achieved solid revenue growth
and a double-digit increase in earnings. Revenue and income gains were
achieved in all of the Company's core businesses, with particularly healthy
performances in the domestic Professional/Trade and STM segments, as well
as in Europe and Canada.
The recently announced agreement to acquire Hungry Minds, Inc. for
approximately $183 million, as outlined in note 9 of the notes to the
condensed financial statements, is consistent with the Company's goal to
increase shareholder value through a combination of organic growth and
acquisitions. The acquisition will enhance the Company's competitive
position in the professional/trade segment; build on its track record with
acquisitions; expand the Company's global reach with recognizable brands;
and drive Web-enabled revenue growth. Meetings with the Hungry Minds staff
have been very positive, and feedback from authors and customers has been
encouraging. The acquisition is expected to add significantly to the
Company's revenue growth and to be neutral on a cash EPS basis in fiscal
2002, and accretive thereafter.
The gross profit margin was 69% in the current period compared with 68.1%
in the prior year period. The improvement was primarily attributable to
product sales mix with a relatively higher journal contribution versus
books. Operating expenses as a percentage of revenues were 47.3% in the
current quarter, compared with 47.2% in the prior year's first quarter.
Operating expenses increased 5% over the prior year. The operating margin
improved to 19% in the current quarter, compared with 18.2% in the prior
year's first quarter.
Net interest expense decreased by $.9 million as a result of lower debt
levels and lower interest rates on the floating rate debt. The effective
tax rate declined to 34.5% in the current year's first quarter compared
with 37.5% in the prior year period. The decrease was attributable to lower
state income taxes resulting from settlement of open tax issues at the end
of the prior fiscal year. The current period effective tax rate is in line
with the 34.7% tax rate incurred in the prior full fiscal year.
SEGMENT RESULTS
Scientific, Technical and Medical (STM)
Domestic STM started the year strongly, with revenues advancing 7% for the
quarter to $40.1 million, coupled with a 10% gain in direct contribution to
profit over the prior year's first quarter. The increases were attributable
to stronger journal subscription renewal rates compared with the prior
year; incremental revenues from recently added society journals; and growth
in our book program resulting from our alliance with IEEE, the premier
society for electrical, electronics and computer engineers.
During the quarter, the Company continued to develop its Wiley InterScience
online service. Usage increased during the quarter with a record number of
articles downloaded. In July, there were over 700,000 user sessions, double
the number of a year ago. Linking to CrossRef, the industry initiative, was
completed for all journals in Wiley InterScience, more than tripling the
number of titles for which links are available. Key Enhanced Access License
signings during the quarter included the renewal of a multi-year license
with one of our largest customers, OhioLink. New licenses were signed with
the University of Texas, the Triangle Research Library Network Consortium
and the University of Zurich, among others.
STM made progress during the quarter developing a new bioinformatics
business in partnership with LabBook. The Company and LabBook developed a
co-branded version of an XML Genomic Viewer that enables retrieval and
viewing of gene and protein data from a variety of databases. STM also
completed a CD-ROM version of the XML Genomic Viewer tailored for its
Current Protocols subscribers. During the quarter, the Company signed a
ten-year extension of its current publishing agreement for the Journal of
Research in Science Teaching, the official journal of the National
Association for Research in Science Teaching.
Professional/Trade
Domestic Professional/Trade reported a 7% increase in revenues to $39.4
million, which resulted in a 14% improvement in direct contribution to
profit. The gains were due to strong backlist sales, particularly in the
architecture, culinary, general interest, and finance programs. The Company
is encouraged by the strength of backlist sales in the first quarter and
frontlist orders for its summer and fall lists. Professional/Trade enjoyed
a strong quarter with publicity for key titles on Bloomberg Television,
CNBC, CNN, PBS NewsHour with Jim Lehrer, National Public Radio, Bon
Appetit, Discover Magazine, US News & World Report, and The Wall Street
Journal.
There is a growing demand for electronic products among the markets that
professional/trade serves, notably computing, accounting, finance,
psychology, and architecture. Professional/Trade is capitalizing on these
opportunities with a combination of print and Web-based products and
services as well as through the formation of strategic alliances. The
Company completed an agreement with the National Association of Certified
Valuation Analysts to replace its valuation software with a customized
version of Wiley's ValuSource PRO. To take advantage of the tax law
changes, Professional/Trade has developed an opportunistic plan to publish
several additional titles in the market-leading Ernst & Young and J.K.
Lasser programs. Shortly after the end of the first quarter, the Company
completed the acquisition of Frank J. Fabozzi Publishing, a publisher of
high quality books for the finance professional market with annual revenues
of about $1 million.
Higher Education
Higher Education's revenues increased 4% to $42.3 million in a sluggish
market. Direct contribution to profit advanced 3%. Bookstores appear to be
ordering conservatively, which should have a positive effect on reorders
and returns for the balance of the year.
To maximize the value of its content, Higher Education continues to
transform its product models to include an effective combination of print
and electronic components. The Company recently signed an agreement with
netLibrary to produce e-books for 15 frontlist titles using the MetaText
platform. Students can purchase the e-books from the netLibrary-MetaText
site for roughly the price of a used printed textbook. The e-books will be
Web-delivered and hosted by MetaText for the duration of the course. To
leverage the Internet as a sales and marketing tool, the Company reached an
agreement with RealRead, a digital publishing company, to display sample
material on the Web for 15 frontlist titles, a capability which will
promote sales. The Company also reached agreements with Maris Multimedia to
develop Interactions: Exploring the Foundations of the Human Body.
Interactions will consist of a series of multimedia modules focusing on the
physiological processes within each system of the human body. Higher
Education publishes the highly regarded textbook by Tortora and Grabowski,
Principles of Anatomy and Physiology.
Europe
European segment revenues of $37.8 million advanced 7%, excluding adverse
foreign currency translation effects, or 4% including those effects. Direct
contribution to profit improved 10%. Advances were driven by strong book
sales across most publishing programs and sales territories, as well as
stronger renewal rates for the STM journals program.
The Company concluded an agreement with Symbian Ltd., a joint venture
between Nokia, Ericsson, Motorola, and NTT to publish a range of titles
about applications and programming for the Symbian operating system.
Symbian's mission is to set the industry standard for mobile wireless
operating systems and to enable a mass market for wireless information
devices.
Other Segments
Other segment revenues of $16.2 million reflected a 3% increase, excluding
adverse foreign currency translation effects, or a negative 1% including
those effects. Revenues were strong in Canada. In Asia, revenues were up
despite the economic slowdown in the region. Direct contribution to profit
in the other segment declined due to a special Australian school adoption
recorded in the first quarter of last year.
In Asia, the Company concluded an agreement with the next Chairman of the
WTO and the Regional Bureau Chief for Business Week to co-author China and
the WTO. In Canada, the adaptation of a successful U.S. textbook, Kimmel:
Financial Accounting, has become the leading title in this market segment.
Australia completed the acquisition of Wrightbooks, a publisher of finance
books for the professional market, with annual revenues of approximately $1
million. In Australia, the Federal Government's Equal Opportunity Agency
awarded the company the highest rating in its annual survey. After a
comprehensive review of its policies and programs, the agency recognized
the company for its "inclusive workplace culture that supports the diverse
range of employee talent."
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all
business combination 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 the goodwill if certain criteria are met. The statement also
requires additional disclosures related to the reasons for the business
combination, the allocation of the purchase price, and if significant by
reportable segment, to the assets acquired and liabilities assumed.
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 at the reporting unit level. Intangible assets that
have finite useful lives will continue to be amortized over their useful
lives. SFAS No. 142 will be effective for the Company's next fiscal year
beginning May 1, 2002 for goodwill and other intangible assets acquired
prior to July 1, 2001, and is effective immediately for acquisitions
occurring after June 30, 2001. The Company is in the process of evaluating
and reassessing its goodwill and other intangible assets to determine the
impact of any impairment and the related useful lives and the corresponding
amortization expense to be recorded. The Company anticipates that
substantially all amortization of goodwill as a charge to earnings will be
eliminated.
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 had a $95 million variable rate term loan outstanding at July
31, 2001, which approximated fair value. The Company did not use any
derivative financial investments to manage this exposure. The weighted
average interest rate as of July 31, 2001 was approximately 4.69%.
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. For a more detailed
description, reference is made to note 3 of the condensed financial
statements.
Credit Risk
The Company's business is not dependant upon a single customer, however,
the book publishing business has witnessed a significant concentration in
national, regional and online bookstore chains in recent years. Although no
one of such customers accounted for more than 6% of total annual
consolidated revenues in fiscal year 2001, to mitigate its credit risk
exposure the Company obtains credit insurance where available. In the
journal-publishing business, subscriptions are primarily sourced through
independent subscription agents who facilitate the journal-ordering process
by consolidating the subscription orders/billings of each subscriber with
various publishers. Monies are collected in advance from subscribers by the
subscription agents and are remitted to the journal publishers, including
the Company, generally prior to the commencement of the subscriptions.
Although at July 31, 2001 the Company had minimal credit risk exposure to
these agents, future calendar-year subscription receipts from these agents
are highly dependent on their financial position and liquidity.
Subscription agents accounted for approximately 24% of total annual
consolidated revenues and no one agent accounted for more than 8% of total
annual consolidated revenues in fiscal year 2001. Insurance for these
accounts is not commercially feasible and/or available.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
none
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
July 31, 2001
"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 Officer
Dated: September 13, 2001