FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: April 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to
Commission file number 1-11507
JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5593032
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
111 River Street, Hoboken, NJ 07030
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Address of principal executive offices Zip Code
Registrant's telephone number including area code (201) 748-6000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Class A Common Stock, par value $1.00 per share New York Stock Exchange
Class B Common Stock, par value $1.00 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K _____
The number of shares outstanding of the Registrant's Class A and Class B Common
Stock, par value $1.00 per share as of May 31, 2004, was 50,362,500, and
11,240,864 respectively, and the aggregate market value of such shares of Common
Stock held by non-affiliates of the Registrant as of such date was
$1,237,012,813 based upon the closing market price of the Class A and Class B
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy Statement to be filed with the Commission on
or about August 5, 2004, for the Annual Meeting of Shareholders to be held on
September 15, 2004 (the "2004 Proxy Statement"), is, to the extent noted below,
incorporated by reference in Part III.
PART I
Item 1. Business
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The Company, founded in 1807, was incorporated in the state of New
York on January 15, 1904. (As used herein the term "Company" means
John Wiley & Sons, Inc., and its subsidiaries and affiliated
companies, unless the context indicates otherwise.)
The Company is a global publisher of print and electronic products,
providing must-have content and services to customers worldwide. Core
businesses include professional and consumer books and subscription
services; scientific, technical, and medical journals, encyclopedias,
books, and online products and services; and educational materials,
including course management and study guides for undergraduate and
graduate students, teachers and lifelong learners. The Company takes
full advantage of the product content of its various core businesses
to develop material and cross-market products to its diverse customer
base of academics, professionals, researchers and consumers. The use
of technology enables the Company to make its content more accessible
to its global communities of interest. The Company has publishing,
marketing, and distribution centers in the United States, Canada,
Europe, Asia, and Australia. The Company promotes long-term
collaborative relationships with customers, authors, professional
societies, suppliers, and employees.
Further description of the Company's business is incorporated herein
by reference in the Management Discussion and Analysis section of this
10-K.
Employees
---------
As of April 30, 2004, the Company employed approximately 3,300 persons
on a full-time basis worldwide.
Financial Information About Industry Segments
---------------------------------------------
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements listed in the attached index is incorporated
herein by reference.
Financial Information About Foreign and
----------------------------------------
Domestic Operations and Export Sales
------------------------------------
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements listed in the attached index is incorporated
herein by reference.
Item 2. Properties
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The Company occupies office, warehouse, and distribution facilities in
various parts of the world, as listed below (excluding those locations
with less than 10,000 square feet of floor area, none of which is
considered material property). All of the buildings and the equipment
owned or leased are believed to be in good condition and are generally
fully utilized.
Lease Expiration
Location Purpose Approx. Sq. Ft. Date
-------- ------- -------------- -----------------
<s> <c> <c> <c>
Leased
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Australia Office 32,000 2006
Warehouse 68,000 2009
Canada Office and Warehouse 87,000 2011
England Office 14,000 2012
Warehouse 126,000 2012
United States:
New Jersey Corporate Headquarters 383,000 2017
Offices
New York Editorial and Administrative 59,000 2010
Offices
New Jersey Distribution Center 188,000 2007
and Office
New Jersey Warehouses 303,000 2006
Indiana Editorial and Administrative 120,000 2009
Offices
California Office 38,000 2012
Singapore Office and Warehouse 68,000 2005
Owned
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Germany Office 57,000
England Office 50,000
Item 3. Legal Proceedings
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The Company is involved in routine litigation in the ordinary course
of its business. In the opinion of management, the ultimate resolution
of all pending litigation will not have a material effect upon the
financial condition or results of operations of the Company.
Item 4. Submission of Matters to a
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Vote of Security Holders
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No matters were submitted to the Company's security holders during the
last quarter of the fiscal year ended April 30, 2004.
PART II
Item 5. Market for the Company's Common
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Equity and Related Stockholder Matters
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The Quarterly Share Prices, Dividends, and Related Stockholder Matters
listed in the attached index are incorporated herein by reference.
Item 6. Selected Financial Data
-----------------------
The Selected Financial Data listed in the attached index is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
----------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations listed in the attached index is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The information appearing under the caption "Market Risk" in
Management's Discussion and Analysis of Financial Condition and
Results of Operations listed in the attached index is incorporated
herein by reference.
Item 8 Financial Statements and Supplemental Data
------------------------------------------
The Financial Statements and Supplemental Data listed in the attached
index is incorporated herein by reference.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
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The following financial statements and information appearing on the pages
indicated are filed as part of this report:
Page(s)
Management's Discussion and Analysis of Financial Condition
And Results of Operations............................................................. 6 - 24
Results by Quarter (Unaudited)................................................................ 24
Quarterly Share Prices, Dividends, and Related Stockholder Matters............................ 25
Selected Financial Data....................................................................... 26
Report of Independent Registered Public Accounting Firm and
Consent of Independent Registered Public Accounting Firm.............................. 27 - 28
Consolidated Statements of Financial Position
as of April 30, 2004, and 2003........................................................ 29
Consolidated Statements of Income
for the years ended April 30, 2004, 2003, and 2002.................................... 30
Consolidated Statements of Cash Flows
for the years ended April 30, 2004, 2003, and 2002.................................... 31
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended April 30, 2004, 2003, and 2002............................................. 32
Notes to Consolidated Financial Statements.....................................................33 - 49
Schedule II-- Valuation and Qualifying Accounts
for the years ended April 30, 2004, 2003, and 2002...................................... 50
Other schedules are omitted because of absence of conditions under which they
apply or because the information required is included in the Notes to
Consolidated Financial Statements.
Management's Discussion and Analysis of Business, Financial Condition and
Results of Operations
The Company is a global publisher of print and electronic products, providing
must-have content and services to customers worldwide. Core businesses include
professional and consumer books and subscription services; scientific,
technical, and medical journals, encyclopedias, books, and online products and
services; and educational materials, including course management and study
guides for undergraduate and graduate students, teachers and lifelong learners.
The Company takes full advantage of the product content of its various core
businesses to develop products that can be cross-marketed to its diverse
customer base of academics, professionals, researchers and consumers. The use of
technology enables the Company to make its content more accessible to its global
communities of interest. The Company maintains publishing, marketing, and
distribution centers in the United States, Canada, Europe, Asia, and Australia.
Professional/Trade Publishing
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The Company's Professional/Trade business acquires, develops and publishes books
and subscription products in all media, with a focus on travel, technology,
psychology, architecture, professional culinary, cooking, business, consumer
reference, education, and general interest. Products are developed for worldwide
distribution through multiple channels, including major chains and online
booksellers, independent bookstores, libraries, colleges and universities,
warehouse clubs, corporations, direct marketing, and Web sites. Global
Professional/Trade publishing accounted for approximately 43% of total Company
revenue in fiscal year 2004.
A key strategy of the Professional/Trade publishing program is to increase
revenue by adding value to its must-have content, the development of leading
brands and franchises, and strategic acquisitions. Revenue for the Company's
worldwide Professional/Trade publishing business grew at a compound annual rate
of approximately 20% over the past five years.
Publishing alliances and franchise products are central to the Company's
strategy. The Company's ability to bring together Wiley's product development,
sales, marketing, distribution and technological capabilities with a partner's
content, and brand name recognition, has been a driving factor in its success.
Alliance partners include the Culinary Institute of America, the American
Institute of Architects, the National Restaurant Association Educational
Foundation, and the Leader to Leader Institute (formerly The Peter F. Drucker
Foundation) and General Mills, among many others.
The Company's customers are professionals, consumers, and students worldwide.
Highly respected brands and extensive backlists are especially well suited for
online bookstores such as Amazon.com. With their unlimited "virtual" shelf
space, online retailers merchandise the Company's products for longer periods of
time than brick-and-mortar bookstores.
Strategic Acquisitions: Key strategic Professional/Trade acquisitions over the
past five years included: (i) An acquired list of approximately 250 titles from
Prentice Hall Direct, a unit of Pearson Education in fiscal year 2003. These
titles include a collection of practical, "hands-on" teaching resources, which
complement the Company's renowned Jossey-Bass education series and its
market-leading Janice Van Cleave series. (ii) In September 2001, of fiscal year
2002, the Company acquired Hungry Minds Inc., a leading publisher with an
outstanding collection of respected brands including 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. (iii) In fiscal year 2002 the Company acquired Frank J. Fabozzi
Publishing and Australian publisher, Wrightbooks Pty Ltd., both publishers of
high-quality finance books for the professional market. (iv) In fiscal year 2000
the Company acquired J.K. Lasser Tax, a publisher of tax and other financial
help guides and Jossey-Bass, a publisher of business, psychology and
education/health management.
Scientific, Technical, and Medical (STM) Publishing
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The Company is a leading international publisher for the scientific, technical,
and medical communities worldwide, such as academic and corporate librarians
that serve scientists, researchers, clinicians, students, and professors. Its
STM products encompass journals, encyclopedias, books, and online products and
services in the life and medical sciences, chemistry, statistics and
mathematics, electrical and electronics engineering, and telecommunication. The
Company's STM programs develop products for global distribution through multiple
channels including library consortia, subscription agents, bookstores, online
booksellers, and direct sales to professional society members and other
customers. Global STM publishing represented 37% of total Company revenue in
fiscal year 2004. STM publishing revenue grew at a compound annual rate of 7%
over the past five years.
The Company's Web-based service, Wiley InterScience (www.interscience.wiley.com)
established commercially in 1999, offers fully searchable online access to the
Company's publications. With more than twelve million authorized users in 87
countries around the globe, Wiley InterScience is one of the world's leading
providers of online scientific, technical, medical, and professional content.
The Web site features over 1,000 journals, major reference works, online books,
current protocols, laboratory manuals, and databases, as well as a suite of
professional and management resources. Wiley InterScience is based on a
successful business model that features Enhanced Access Licenses. One to three
years in duration, these licenses provide academic and corporate customers with
multi-site online access. Created to respond to the evolving needs of today's
researchers and professionals, Wiley InterScience offers flexible access, and
service plans, and personalization features to meet customer needs. Wiley
InterScience includes full-text HTML versions of journal content, allowing more
advanced search and navigation options, and providing customers with greater
choice and control over the information they retrieve.
Wiley InterScience offers a mobile Internet service for certain of its journals
called MobileEditions to provide tables of contents and abstracts from Wiley
InterScience directly to personal and wireless handheld devices and Web-enabled
phones. Other features of Wiley InterScience include EarlyView, which provides
customers with online access to individual articles well in advance of the print
issue, and ContentAlerts and RoamingAccess, which enables researchers to access
the scientific literature they need, as soon as it is available, wherever and
whenever they want. Another feature of Wiley InterScience, called ArticleSelect,
allows subscribers with Enhanced Access Licenses to gain access to individual
articles and chapters from publications, which they do not hold subscriptions.
The publications include journal content, online books, and an extensive range
of online reference works. In fiscal year 2003 the Company introduced
Pay-Per-View, serving customers who want the opportunity to purchase individual
articles by credit card.
Strategic Acquisitions: In April 2002, the Company acquired A&M Publishing Ltd.,
a U.K.-based publisher for the pharmaceutical and health-care sectors, and GIT
Verlag GmbH, a German publisher for the chemical, pharmaceutical, biotechnology,
security, and engineering industries. These businesses derive revenue
principally from advertising.
Higher Education
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The Company publishes educational materials for the higher education market in
all media, focusing on courses in the sciences, geography, mathematics,
engineering, accounting, business, economics, computer science, psychology,
education, and modern languages. In Australia, the Company is also a leading
publisher for the secondary school market.
Higher Education customers include undergraduate, graduate, and advanced
placement students, educators, and lifelong learners worldwide. Product is
delivered principally through college bookstores, online booksellers, and Web
sites. Globally, Higher Educational publishing generated 20% of total Company
revenue in fiscal year 2004. Through organic growth and the development of new
and acquired products, both print and electronic, the Company's worldwide Higher
Education publishing revenue grew at a compound annual rate of 10% over the past
five years.
Higher Education's mission is to help teachers teach and students learn. Our
strategy is to provide value-added quality materials and services through
textbooks, supplemental study guides, course management tools and more, in print
and electronic/Web-based formats. The Higher Education Web site offers online
learning materials on more than 2,300 sub-sites to support and supplement
textbooks.
Strategic Acquisitions: In fiscal year 2003 the Company acquired the assets of
Maris Technologies to support the company's drive to produce Web-enabled
products. This acquisition included the market-leading software Edugen, which
provides users with the capability to customize their courses and to receive and
study online, only the material they require. The Company leverages the skills
of this development group across the organization. The development facility
located in Moscow, Russia is staffed by approximately 45 highly skilled
programmers and designers. In fiscal year 2002 the Company acquired publishing
assets consisting of 47 higher education titles from Thomson Learning. The
titles are in such publishing areas as business, earth and biological sciences,
foreign languages, mathematics, nutrition, and psychology.
Supported by the Edugen technology platform, Higher Education has launched a
number of products that integrate technology and print to provide students and
instructors with tools to improve outcomes or meet specific objectives such as
eGrade Plus and Interactive Homework Edition initiatives. In fiscal year 2002
the Company introduced the Wiley Faculty Resource Network, a peer-to-peer
network of faculty/professors supporting the use of online course material tools
and discipline-specific software in the classroom. The Company believes this
unique, reliable, and accessible service gives the Company a competitive
advantage.
To mitigate the effect of used textbook sales, which is a continuing
industry-wide problem, Higher Education has introduced the Web Access Licensing
program, which is a fee-based service that provides access to online supplements
for students who purchase new books.
The Company continues to develop new formats, creating more value for teachers
and students such as Active Learning Editions, which includes brief texts and
integrated study tools as a lower-priced alternative to traditional textbooks.
One of the trends in higher education is toward distance learning - students
taking online courses either on or off campus.
Higher Education is also leveraging the Web in its sales and marketing efforts.
The Web increases the Company's ability to have direct contact with students and
faculty at universities worldwide through the use of interactive electronic
brochures and e-mail campaigns.
Publishing Operations
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Journal Products
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The Company publishes over 1,000 journals and other subscription-based STM and
Professional/Trade products, which accounted for approximately 32% of the
Company's fiscal year 2004 revenue. Most journals are owned by the Company, in
which case they may or may not be sponsored by a professional society. Some are
owned by societies and published by the Company in collaboration with the
societies pursuant to contracts. Societies that sponsor or own such journals
generally receive a royalty and/or other consideration. The Company usually
enters into agreements with outside independent editors of journals that state
the duties of the editors, and the fees and expenses for their services.
Contributors of journal articles transfer publication rights to the Company or
professional society, as applicable.
Journal subscriptions result primarily from licenses for the Web-based Wiley
InterScience service negotiated directly with customers or their subscription
agent by the Company's sales representatives, direct mail or other advertising,
promotional campaigns, and memberships in professional societies for those
journals that are sponsored by such societies. Licenses range from one to three
years in duration.
Printed journals are generally mailed to subscribers directly from independent
printers. Journal content for virtually all journals is also made available
online. Subscription revenue is generally collected in advance, and is deferred
and recognized as earned when the related issue is shipped or made available
online, or over the term of the subscription as services are rendered.
Book Products
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Materials for book publications are obtained from authors throughout most of the
world through the efforts of an editorial staff, outside editorial advisors, and
advisory boards. Most materials originate with their authors or as a result of
suggestion or solicitations by editors and advisors. The Company enters into
agreements with authors that state the terms and conditions under which the
materials will be published, the name in which the copyright will be registered,
the basis for any royalties, and other matters. Most of the authors are
compensated by royalties, which vary with the nature of the product and its
anticipated sales potential. The Company makes advance payments against future
royalties to authors of certain publications.
The Company continues to add new titles, revise existing titles, and discontinue
the sale of others in the normal course of its business, also creating
adaptations of original content for specific markets fulfilling customer demand.
The Company's general practice is to revise its textbooks every three to five
years, if warranted, and to revise other titles as appropriate.
Subscription-based products are updated more frequently on a regular schedule.
Approximately 34% of the Company's fiscal year 2004 U.S. book-publishing revenue
was from titles published or revised in the current fiscal year.
Professional and consumer books are sold to bookstores and online booksellers
serving the general public; wholesalers who supply such bookstores; warehouse
clubs; college bookstores for their non-textbook requirements; individual
professional practitioners; and research institutions, jobbers, libraries
(including public, professional, academic, and other special libraries),
industrial organizations, and governmental agencies. The Company employs sales
representatives who call upon independent bookstores, national and regional
chain bookstores, wholesalers, and jobbers. Trade sales to bookstores,
wholesalers, and jobbers are generally made on a returnable basis with certain
restrictions. The Company provides for estimated future returns on sales made
during the year principally based on historical experience. Sales of
professional and consumer books also result from direct mail campaigns,
telemarketing, online access, and advertising and reviews in periodicals.
Adopted textbooks and related supplementary material (i.e., textbooks prescribed
for course use) are sold primarily to bookstores including online bookstores,
serving educational institutions. The Company employs sales representatives who
call on faculty responsible for selecting books to be used in courses, and on
the bookstores that serve such institutions and their students. Textbook sales
are generally made on a fully returnable basis with certain restrictions. The
textbook business is seasonal, with the majority of textbook sales occurring
during the June through August and November through January periods. There is an
active used textbook market, which negatively affects the sales of new
textbooks.
Like most other publishers, the Company generally contracts with independent
printers and binderies for their services. The Company purchases its paper from
independent suppliers and printers. Paper prices on average decreased slightly
during fiscal year 2004. Management believes that adequate printing and binding
facilities, and sources of paper and other required materials, are available to
it, and that it is not dependent upon any single supplier. Printed book products
are distributed from both Company-operated warehouses and independent
distributors.
The Company develops content in digital format that can be used for both online
and print products, which results in productivity and efficiency savings, as
well as enabling the Company to offer customized publishing and print-on-demand
products. Book content is increasingly being made available online through Wiley
InterScience and other platforms, and in eBook format through licenses with
alliance partners. The Company is also developing online communities of
interest, both on its own and in partnership with others, to expand the market
for its products.
The Company believes that the demand for new electronic technology products will
increase. Accordingly, to properly service its customers and to remain
competitive, the Company anticipates it will be necessary to increase its
expenditures related to such new technologies over the next several years.
The Internet not only enables the Company to deliver content online, but also
helps to sell more books. The growth of online booksellers benefits the Company
because they provide unlimited virtual "shelf space" for the Company's entire
backlist.
Marketing and distribution services are made available to other publishers under
agency arrangements. The Company also engages in copublishing of titles with
international publishers and in publication of adaptations of works from other
publishers for particular markets. The Company also receives licensing revenue
from photocopies, reproductions, and electronic uses of its content.
Global Operations
- -----------------
The Company's publications are sold throughout most of the world through
operations located in Europe, Canada, Australia, Asia, and the United States.
All operations market their indigenous publications, as well as publications
produced by other parts of the Company. The Company also markets publications
through agents as well as sales representatives in countries not served by the
Company. John Wiley & Sons International Rights, Inc., sells reprint and
translations rights worldwide. The Company publishes or licenses others to
publish its products, which are distributed throughout the world in many
languages. Approximately 39% of the Company's fiscal year 2004 revenue was
derived from non-U.S. markets.
Competition and Economic Drivers Within the Publishing Industry
- ---------------------------------------------------------------
The sectors of the publishing industry in which the Company is engaged are
highly competitive. The principal competitive criteria for the publishing
industry are believed to be product quality, customer service, suitability of
format and subject matter, author reputation, price, timely availability of both
new titles and revisions of existing books, online availability of published
information, and for textbooks and certain trade books, timely delivery of
products to retail outlets and consumers. Recent years have seen a consolidation
trend within the publishing industry, including the acquisition of several
publishing companies by larger publishers and other companies.
The Company is in the top rank of publishers of scientific and technical
journals worldwide, as well as a leading commercial chemistry publisher at the
research level; one of the leading publishers of university and college
textbooks and related materials for the "hardside" disciplines i.e., sciences,
engineering, and mathematics; and a leading publisher in its targeted
professional/trade markets. The Company knows of no reliable industry statistics
that would enable it to determine its share of the various international markets
in which it operates.
The Company measures its performance based upon revenue, operating income, net
income and cash flow growth excluding unusual or one-time events, and
considering current worldwide and regional economic conditions. Because of the
Company's unique blend of businesses, industry statistics do not always provide
informative comparatives. The Company does maintain market share statistics
within each area for the Professional/Trade and Higher Education businesses. For
Professional/Trade, market share statistics published by BOOKSCAN, a statistical
clearinghouse for book industry point of sale in the United States, are used.
The statistics include survey data from all major retail outlets, mass
merchandisers, small chain and independent retail outlets. For Higher Education,
the Company subscribes to Management Practices Inc., which publishes customized
comparative sales reports.
Results of Operations
Fiscal Year 2004 Compared to Fiscal Year 2003
The Company achieved record revenue, operating income, net income and cash flow
in fiscal year 2004. For the full year, revenue advanced 8% over prior year to
$923 million, or 5% excluding foreign currency effects. The year-on-year growth
was driven primarily by the strong second half performances of
Professional/Trade in the U.S. and Scientific, Technical, and Medical globally.
Operating income advanced 8% to $129.4 million in fiscal year 2004. Operating
margin was 14.0% compared with 14.1% in fiscal year 2003, reflecting higher
operating and administrative costs partially offset by an improvement in gross
margin.
Earnings per diluted share and net income for fiscal year 2004 were $1.41 and
$88.8 million, compared to $1.38 and $87.3 million in fiscal year 2003.
Excluding the tax benefits reported in fiscal year 2004 and 2003 and the
relocation charge in fiscal year 2003 related to the Company's relocation to
Hoboken, New Jersey, earnings per diluted share and net income for the fiscal
year ended April 30, 2004, rose 12% to $1.36 and $86 million from $1.22 and $77
million in the prior year on the same basis, respectively.
Cash flow after investing activities for fiscal year 2004 was $120 million as
compared to $44 million in the prior year. The improvement reflects the combined
effect of a 25% increase in cash provided by operating activities and the
expected decrease in capital expenditures.
Non-GAAP Financial Measures: Management believes the non-GAAP financial
measures, which exclude certain tax credits and relocation charge described
below, provide a more meaningful comparison of the Company's year-over-year
results. These events are unusual to the Company, and except for the net tax
benefits in fiscal year 2004, are unlikely to recur in the foreseeable future.
In fiscal year 2004 the Company recognized a net tax benefit of $3.0 million or
$0.05 per diluted share related to the resolution of certain state and federal
tax matters and accrued foreign taxes.
In fiscal year 2003 the Company merged several of its European subsidiaries into
a new entity, which enabled the Company to increase the tax-deductible asset
basis of the merged subsidiaries to the fair value of the business at the date
of merger. Under U.S. accounting principles, the tax benefit attributable to the
increase in tax basis is immediately included in income. Consequently, the
Company had a one-time tax benefit of $12.0 million, equal to $0.19 per diluted
share, in fiscal year 2003. The cash benefit of this change will be recognized
pro rata over a 15-year period. The Company's effective tax rate, excluding this
tax benefit, was 33.1% for the year.
In the fourth quarter of fiscal year 2002, Wiley finalized its commitment to
relocate the Company's headquarters to Hoboken, N.J. The relocation was
completed in the first quarter of fiscal year 2003. The new facility provides a
more collaborative and efficient work environment and will meet the Company's
growth expectations. Fiscal year 2003 includes an unusual charge for costs
associated with the relocation of approximately $2.5 million, or $1.5 million
after tax.
Pro forma operating income and net income excluding the tax benefits and
relocation charge are as follows:
Reconciliation of non-GAAP financial disclosure
(In millions) 2004 2003
- ------------------------------------------ ---------- ----------
Operating Income as reported $129.4 $120.3
Relocation charge - 2.5
---------- ----------
Pro Forma Operating Income $129.4 $122.8
========== ==========
Net Income as reported $88.8 $87.3
Relocation charge, net of tax - 1.4
Resolution of tax matters (3.0) -
Tax benefit from merger - (12.0)
---------- ----------
Pro Forma Net Income $85.8 $76.7
========== ==========
Cost of sales as a percentage of revenue was 33.5% in fiscal year 2004 and 33.8%
in fiscal year 2003. The favorable results were principally due to higher
journal revenue and lower inventory costs resulting from cost contingency
programs in place during fiscal year 2004. Production costs for journals as a
percentage of revenue are typically lower than the same costs for books
reflecting lower royalty costs.
Operating and administrative expenses as a percentage of revenue increased to
51.5% in fiscal year 2004, from 50.7% in the prior fiscal year. The increase was
principally due to incentive compensation, pension and health costs of
approximately $12.9 million; technology costs of approximately $7.8 million,
driven by product development of Web-enabled products; and foreign exchange
effects of approximately $16.7 million.
Fourth quarter 2004 operating and administrative expenses, excluding foreign
exchange, increased $18.3 million over the fourth quarter of fiscal year 2003.
The increase was principally due to the timing of accrued performance
compensation which reflects the achievement of cumulative corporate goals in the
fourth quarter of fiscal year 2004.
Interest expense, net of interest income improved $3.4 million due to lower debt
and interest rates. The Company's effective tax rate was 29.0% in fiscal year
2004. Excluding the tax benefits described in the Non-GAAP financial disclosure,
the effective tax rate decreased to 31.4% as compared to 33.1%, mainly due to
lower foreign taxes.
In January 2002, the World Trade Organization ruled that the Extra Territorial
Income exclusion ("ETI", formerly the Foreign Sales Corporation) was an export
subsidy inconsistent with U.S. obligations under international trade agreements.
The ETI provides a tax benefit to Wiley and other U.S. corporations by excluding
from taxable income certain foreign trading income. Proposed legislation has
been presented to the U.S. Congress which will repeal the ETI tax benefit and
replace it with an alternative tax benefit available to all U.S. manufacturers.
As noted in the Company's footnotes to the fiscal year 2004 annual report filed
with the SEC on form 10K, the tax benefit to the Company reduced the annual
effective income tax rate by 1.6%. At the filing of this 10K the proposed
legislation has not yet been approved by Congress.
Fiscal Year 2004 Segment Results
Professional/Trade (P/T):
Dollars in thousands 2004 2003 % change
- ----------------------- ------------- ------------ ----------
Revenue $340,252 $321,963 6%
Direct Contribution $93,945 $87,354 8%
Contribution Margin 27.6% 27.1%
Revenue of Wiley's U.S. P/T business increased 6% to $340 million in fiscal year
2004, principally due to organic growth in key publishing categories. Revenue
rebounded solidly in the second half of the year, particularly in the business,
architecture, culinary, education, and consumer programs. An improving retail
book market contributed to the 16% revenue increase in the fourth quarter.
Higher revenue along with lower inventory costs due to cost contingency
programs, and lower composition costs, contributed to the improvement in
margins.
P/T's business program generated strong momentum throughout the second half of
the year. Two finance titles performed particularly well, Hirsch & Hirsch/Stock
Trader's Almanac and Mauldin/Bull's Eye Investing (which published during the
fourth quarter and quickly made the Wall Street Journal business bestseller
list). Also contributing to the top-line results were real estate titles, such
as Allen/Multiple Streams of Income (which appeared on the Wall Street Journal
business bestseller list); leadership titles, such as the third edition of
Kouzes & Posner/Leadership Practices Inventory and Lencioni/Five Dysfunctions of
a Team (which celebrated 20 months on the BusinessWeek hardcover business
bestseller list); as well as Testosterone, Inc., an examination of CEO
misbehavior by Martha, Inc. author Christopher Byron.
Wiley's consumer programs, including the CliffsNotes and For Dummies brands, had
a solid year. Extension of the CliffsNotes brand to new CliffsStudySolver Guides
helped generate additional sales. Record-breaking traffic on Dummies.com drove
incremental sales and reinforced the brand.
P/T's travel program showed renewed strength in the second half of the year as
vacation and business travel rebounded. Frommer's, Wiley's market-leading travel
brand, had an excellent year. Frommers.com had a record number of visitors this
year, as evidenced by a greater than 40% increase in page views and user
sessions.
The culinary program had a solid year, led by the Betty Crocker franchise. The
Betty Crocker Bisquick II Cookbook, which published during the fourth quarter,
sold well. Earlier in the year, Wiley launched a Betty Crocker microsite on
FoodTV.com to increase the brand's presence and drive sales. Building on the
successful Betty Crocker publishing partnership, Wiley signed another multi-year
agreement with General Mills to publish new cookbooks under the well-known
Pillsbury brand.
The technology publishing program gained some momentum during the second half of
the year despite challenging market conditions. Although sales were down
slightly from last year, Wiley's program maintained the significant market share
gained in the prior year. Sales of consumer technology books on topics such as
digital photography, wireless home networking and security, and professional
technology titles, increased modestly for the year.
Scientific, Technical, and Medical (STM):
Dollars in thousands 2004 2003 % change
- ----------------------- ------------- ------------ ----------
Revenue $178,100 $168,208 6%
Direct Contribution $86,310 $77,937 11%
Contribution Margin 48.5% 46.3%
Wiley's U.S. STM revenue increased 6% to $178 million in fiscal year 2004 from
$168 million in the previous year. Fourth quarter revenue increased over prior
year by 17% to $51 million. Society journals, digitized journal backfiles,
online major reference works, Current Protocols and the book program contributed
to the year-on-year growth. STM books finished the year strongly, posting a 14%
increase in the fourth quarter and a 4% increase for fiscal year 2004. The
improvement in margin was driven by product mix reflecting an increase in
journal products sold.
Worldwide STM journal revenue increased 11% for the fiscal year. The Company's
STM business continued its transformation to digital access through Wiley
InterScience. Approximately 70% of STM's global journal subscription revenue is
now generated by Wiley InterScience licenses. The number of journal articles
viewed increased by approximately 39% in fiscal year 2004, continuing the rapid
growth in customer usage since the service was launched commercially in fiscal
year 1999.
The STM book program showed improvement throughout the year. Sales of online
major reference works and OnlineBooks were robust. Early in the fourth quarter,
Wiley signed an agreement to distribute Merck's professional manuals in the
U.S., including The Merck Manual, The Merck Veterinary Manual, The Merck Manual
of Geriatrics and The Merck Index. These titles are widely considered to be
among the most trusted resources for medical and scientific information.
Higher Education:
Dollars in thousands 2004 2003 % change
- ----------------------- ------------- ------------ ----------
Revenue $152,861 $148,220 3%
Direct Contribution $41,749 $39,938 5%
Contribution Margin 27.3% 26.9%
Wiley's U.S. Higher Education revenue increased 3% to $153 million in fiscal
year 2004. Programs in the sciences and the social sciences did especially well.
Sales of engineering and computer science titles continued to reflect sluggish
market conditions. In the fourth quarter, which is seasonally the least
significant for Higher Education, revenue declined from the same period in the
previous year, principally due to sluggish market conditions. The improvement in
margin was principally due to higher sales and the benefits of selling P/T
products through the Higher Education sales force.
Year-on-year growth was driven by top-selling titles such as Tortora/Principles
of Anatomy and Physiology, 10th edition; Kieso/Intermediate Accounting, 11th
edition; Kimmel, Weygandt, and Kieso/Financial Accounting, 3rd edition;
Solomons/Organic Chemistry, 8th edition; Huffman/Psychology in Action, 7th
edition; Connally, Hughes-Hallett and Gleason/Functions Modeling Change, 2nd
edition; and Cutnell and Johnson/Physics, 6th edition.
The textbooks and related educational materials that Wiley develops continue to
be widely regarded by professors and students as crucial to effective teaching
and learning. Wiley remains committed to delivering the highest quality
materials and services, while addressing concerns about price and value. For
example, Wiley's Core Concepts texts are pared-down, economical paperback books
designed to be used in combination with online and customized components.
At the same time, the Company is migrating to online delivery in pace with
customers' needs. Doing so offers opportunities for more customization and new
pricing and business models. At a time when state budget cuts are increasing
class sizes, innovative new products and services, most of which are
technology-enabled, are helping teachers teach and students learn.
During the year, the Company launched eGrade Plus, which is the first product
built on Wiley's Edugen technology platform. This platform enables Wiley to
deliver integrated content that is organized around teaching and learning
activities. Several pricing options are available to students. eGrade Plus is an
innovative service which is being well received by our customers.
Europe:
Dollars in
thousands 2004 2003 % change % excluding FX
- ----------------- ------------ ------------ ---------- --------------
Revenue $238,436 $210,482 13% 5%
Direct
Contribution $74,585 $ 69,191 8% 5%
Contribution
Margin 31.3% 32.9%
Full-year revenue of Wiley Europe advanced 13% over the prior year to $238
million, including foreign exchange gains, or 5% excluding exchange effects.
Fourth quarter revenue was up 19% to $69 million, including foreign currency
gains, or 10% excluding currency. Several factors contributed to the revenue
growth of Wiley Europe's journal program, including a full year's results of the
British Journal of Surgery and Ultrasound in Obstetrics and Gynecology,
excellent reprint sales, healthy subscription and license renewals, and growth
in Article Select sales. In Germany, Wiley-VCH launched a number of new
journals, including Engineering in Life Sciences, Laser Physics Letters, Laser
Technik Journal and Applied Numerical Analysis and Computational Mathematics.
Direct contribution improved principally due to higher journal revenue.
Excluding foreign exchange, the contribution margin percentage was on par with
the prior year.
Asia, Australia, and Canada:
Dollars in
thousands 2004 2003 % change % excluding FX
- ----------------- ------------ ------------ ---------- --------------
Revenue $98,986 $87,314 13% 1%
Direct
Contribution $22,218 $16,278 36% 1%
Contribution
Margin 22.4% 18.6%
Wiley's combined revenue for its operations in Asia, Australia and Canada
advanced 13% to $99 million in fiscal year 2004 or 1% excluding foreign
exchange. Fourth quarter revenue increased 11% over the prior year or 1%
excluding foreign exchange. Foreign exchange gains, P/T sales growth in India,
Taiwan and Indonesia and higher sales of indigenous products in Australia were
partially offset by lower sales in Canada due to a weak retail book market. The
improvement in direct contribution is principally due to revenue. Contribution
margin, excluding foreign exchange was on par with the prior year.
The indigenous Asian publishing program finished the year on a high note,
bolstered by strong global sales of key frontlist titles and a robust backlist
performance. Wiley formed an alliance with Citibank to develop personal finance
books in Asia. In addition, Wiley Asia launched the For Dummies franchise in
China, publishing 20 consumer and business titles.
Wiley Canada's Higher Education performance during the quarter and the full year
improved, in part, due to the introduction of adaptations of U.S. Higher
Education titles. Growth in Higher Education did not, however, compensate for
P/T sales, which were depressed by the weak economy and unusually high
industry-wide returns.
In Australia, indigenous P/T publishing performed well, while Higher Education
and School sales were sluggish, reflecting market conditions. During the
quarter, the Company signed publishing agreements with the Australian Stock
Exchange and the Australian Institute of Management.
Results of Operations
Fiscal Year 2003 Compared to Fiscal Year 2002
Revenue in fiscal year 2003 increased 16% over the prior year to $854 million,
including foreign currency translation effects, or 14% excluding those effects.
Excluding Hungry Minds, acquired in September 2001 - Wiley's largest acquisition
- - revenue increased 8%. In addition to Hungry Minds, year-on-year growth was
driven primarily by organic growth in the U.S. and the April 2002 acquisition of
GIT Verlag in Germany and A&M Publishing in the U.K.
Operating income advanced 37.0% to $120.3 million in fiscal year 2003. Operating
margin, excluding unusual items as explained below, was 14.4% compared with
13.6% in fiscal year 2002, reflecting improvement due to acquisitions, a $5
million write-off of two investments in fiscal year 2002, and the effect of
lower amortization ($9.6 million) due to the adoption of Statement of Financial
Accounting Standard (SFAS) No. 142 in fiscal year 2003. Operating margin as
reported for fiscal years 2003 and 2002 was 14.1% and 12.0%, respectively.
Management believes the non-GAAP financial measures, which exclude a one-time
tax credit and relocation charge, provide a more meaningful comparison of the
Company's year-over-year results. The tax credit resulted from a corporate
reorganization and the relocation charge is associated with a move of the
Company's corporate headquarters, both unusual to the Company and unlikely to
recur in the foreseeable future. Both events were completed in fiscal year 2003.
During fiscal year 2003, the Company centralized several Web development
activities, which were previously in the publishing operations. This
organizational change will enable the Company to leverage these capabilities
more efficiently across all of its global businesses. The expenses for these
activities are now included in shared services and administrative costs, whereas
previously they were included in business segment results. Accordingly, these
expenses were reclassified for in the fiscal year 2002 segment financial
statements to provide a more meaningful comparison.
Earnings per diluted share and net income for the fiscal year ended April 30,
2003, advanced 18% to $1.22 and $76.7 million, respectively, excluding a
one-time tax benefit in fiscal year 2003 and an unusual charge in fiscal years
2003 and 2002, related to the Company's relocation to Hoboken, New Jersey.
Including the tax benefit and unusual charge, earnings per diluted share and net
income for fiscal year 2003 were $1.38 and $87.3 million, compared to $0.91 and
$57.3 million in fiscal year 2002.
In the fourth quarter of fiscal year 2002, Wiley finalized its commitment to
relocate the Company's headquarters to Hoboken, N.J. The relocation was
completed in the first quarter of fiscal year 2003. The new facility provides a
more collaborative and efficient work environment and will meet the Company's
growth expectations. The relocation was accomplished on attractive financial
terms. Fiscal years 2003 and 2002 included an unusual charge for costs
associated with the relocation of approximately $2.5 million, or $1.5 million
after tax, and $12.3 million, or $7.7 million after tax, for the respective
periods.
In fiscal year 2003, the Company merged several of its European subsidiaries
into a new entity, which enabled the Company to increase the tax-deductible
asset basis of the merged subsidiaries to the fair value of the business at the
date of merger. Under U.S. accounting principles, the tax benefit attributable
to the increase in tax basis is immediately included in income. Consequently,
the Company had a one-time tax benefit of $12.0 million, equal to $0.19 per
diluted share, in fiscal year 2003. The cash benefit of this change will be
recognized pro rata over a 15-year period. The Company's effective tax rate,
excluding this tax benefit, was 33.1% for fiscal year 2003.
Effective May 1, 2002, the Company adopted SFAS No. 142, which eliminated the
amortization of goodwill and indefinite lived intangible assets. In fiscal year
2003, the estimated after-tax impact of the non-amortization of goodwill and
intangible assets was $1.9 million equal to $0.03 per share, for the fourth
quarter and $7.8 million equal to $0.12 per share, for the year.
Pro forma operating income and net income excluding the relocation charge,
one-time tax benefit and the elimination of amortization of goodwill and
indefinite life intangible were as follows:
Reconciliation of non-GAAP financial disclosure
- -----------------------------------------------
(In millions) 2003 2002
- ------------------------------------------ ---------- ----------
Operating Income as Reported $120.3 $87.8
Relocation Charge 2.5 12.3
SFAS No. 142 - 9.6
---------- ----------
Pro Forma Operating Income $122.8 $109.7
========== ==========
Net Income as Reported $87.3 $57.3
Relocation Charge, Net of Taxes 1.4 7.7
SFAS No. 142, Net of Tax - 7.8
One-Time Tax Benefit (12.0) -
---------- ----------
Pro Forma Net Income $76.7 $72.8
========== ==========
Cost of sales as a percentage of revenue was 33.8% in fiscal year 2003 and 33.1%
in fiscal year 2002. The increase was principally due to product mix and the
full-year impact from the addition of consumer titles from the Hungry Minds
acquisition, which was acquired in September 2001. While Hungry Minds has
attractive financial characteristics, its gross margin as a percent of revenue
is lower than Wiley's consolidated gross margin.
Operating and administrative expenses as a percentage of revenue declined to
50.7% in fiscal year 2003, from 50.9% in fiscal year 2002. Synergistic benefits
realized through the Hungry Minds acquisition and a $5 million write-off of two
investments in fiscal year 2002 were partially offset by depreciation and other
costs on new facilities.
During the year, the Company relocated three of its operations to new offices.
Its global headquarters was moved to a waterfront site in Hoboken, New Jersey,
while its European operations were relocated to new offices in Chichester in the
U.K. and Weinheim, Germany. All of the new facilities were designed to promote
collaboration and productivity and provide room for growth and expansion.
Interest expense was $8.0 million in fiscal year 2003, up from $7.5 million in
fiscal year 2002, reflecting the impact of acquisition financing.
The Company's effective tax rate was 22.5% in fiscal year 2003. Excluding the
tax benefit mentioned above, the effective tax rate increased to 33.1% as
compared to 29.3% in fiscal year 2002, reflecting higher foreign taxes in fiscal
year 2003 and a favorable settlement of tax issues reported in fiscal year 2002.
During fiscal year 2003, the Company repurchased 535,600 Class A Common shares
at an average price of $21.77 per share for a total cost of $11.7 million.
Through April 30, 2003, the Company repurchased 3.3 million Class A Common
shares at an average price of $17.61 per share for a total cost of $57.9 million
under the Company's existing stock repurchase program. In December 2002, as the
existing program neared its limit of 4 million shares, the Board of Directors
approved an expanded program, increasing the number of shares that may be
acquired by an additional 4 million shares of Class A Common Stock.
Fiscal Year 2003 Segment Results
Professional/Trade (P/T): Revenue of Wiley's U.S. P/T business advanced 27% over
fiscal year 2002, reflecting the full-year effect of the Hungry Minds
acquisition and organic growth. While growth in the first half of the year was
very strong, second-half performance was adversely impacted by a sluggish retail
environment and reduced customer traffic at brick-and-mortar bookstores as a
result of the war in Iraq. Despite these unfavorable external factors, P/T
revenue for the fourth quarter advanced 5% over the prior year. Wiley gained
market share in all of its P/T publishing categories. The direct contribution
margin was 27.1% of revenue in fiscal year 2003 compared with 25.0% of revenue
in the prior year. The margin improvement was principally due to the integration
of Hungry Minds and the elimination of goodwill and indefinite life intangible
amortization.
Wiley's business program continued to exhibit strength despite soft market
conditions. Eight Wiley business titles appeared on major bestseller lists,
including Conquer the Crash: You Can Survive and Prosper in a Deflationary
Depression; Five Dysfunctions of a Team: A Leadership Fable; The Morningstar
Guide to Mutual Funds: 5-Star Strategies for Success; Home Buying For Dummies;
Starting an eBay Business For Dummies; Straight Talk on Investing: What You Need
to Know; The Ernst & Young Tax Guide 2003; and JK Lasser's Your Income Tax 2003.
The Company's consumer publishing programs had a strong year, particularly
cooking, reference, and travel. Cookbooks that sold well during the year were
Betty Crocker's Cooking With Diabetes, Betty Crocker's Cookbook 9e, and Weight
Watchers New Complete Cookbook. Two Wiley consumer titles appeared on major
bestseller lists during the year: Bush's Brain and Religion For Dummies.
Although the overall market for computer books continued to be weak, Wiley's
technology publishing program outperformed the market and gained significant
market share. Performing particularly well were consumer titles in areas such as
digital photography, digital imaging software, general PC technology, Windows
XP, home networking, eBay, Apple's Mac OS X, Red Hat Linux, and CD/DVD
recording. In April 2003, Wiley acquired 34 best-selling computer titles from
Wrox Press.
The Company's professional and academic programs in architecture,
culinary/hospitality, psychology, and teacher education had a solid year. Wiley
launched Graphicstandards.com, a major step in the evolution of the
Architectural Graphic Standards franchise. Earlier in the year, Wiley acquired
approximately 250 teacher education titles, representing an important step
toward becoming the leading publisher of high-quality resources and ready-to-use
tools for school leaders and classroom instructors.
Scientific, Technical, and Medical (STM): In fiscal year 2003, Wiley's U.S. STM
revenue was 2% higher than the prior year. The continued success of the Wiley
InterScience online service mitigated the adverse impact of the Divine/Rowecom
bankruptcy and softness in the STM book market due to tight library budgets.
Global STM revenue for the fiscal year 2003 increased 12% as compared to the
previous year, bolstered by the acquisitions of GIT Verlag and A&M Publishing at
the beginning of the fiscal year, as well as journal growth. The direct
contribution margin in fiscal year 2003 was 46.3% compared with 43.1% in fiscal
year 2002. Fiscal year 2002 included a $5 million write-off of two STM
investments.
Wiley's STM online service Wiley InterScience experienced a significant increase
in the number of journal articles viewed. More than 60% of global journal
subscription revenue was generated by Wiley InterScience licenses.
The Company continued to add content and functionality to Wiley InterScience,
increasing revenue by meeting customer needs. The Polymer Backfile Collection
launched on Wiley InterScience with great success in March. The largest
collection of high-quality polymer science backfile articles available online
from a single publisher, the collection includes more than 600,000 pages of
articles from seminal journals, such as the Journal of Polymer Science and
Macromolecular Chemistry and Physics.
More than half a dozen major reference works were added to Wiley InterScience
during fiscal year 2003, including the sixth edition of the 40-volume Ullman's
Encyclopedia of Industrial Chemistry.
Wiley had an excellent year in the continued development of its society journal
program, signing agreements to publish several important journals in print and
online, such as the British Journal of Surgery, Hepatology, Liver
Transplantation, and Ultrasound in Obstetrics and Gynecology. In addition, the
Company successfully renewed its publishing contract for Cancer, a publication
of the American Cancer Society, and extended its publishing contracts for Annals
of Neurology, Journal of Magnetic Resonance Imaging, and Magnetic Resonance in
Medicine.
Higher Education: Full-year revenue for the U.S. Higher Education business was
up over the comparable prior-year period by 5%. Revenue growth was principally
due to a strong front list in the life sciences, as well as solid performances
of the physical sciences and social sciences programs. Results continued to be
affected by sluggish industry wide conditions in engineering, although there was
some improvement in the fourth quarter. Global revenue for fiscal year 2003
increased 6% over the prior year. The contribution margin for fiscal year 2003
was 26.9% as compared with 31.3% in fiscal year 2002. The change was principally
due to product mix.
During the fourth quarter, Higher Education launched its biggest front list
ever. Key new products include Hughes-Hallett/Applied Calculus 2e; Tortora and
Grabowski/Principles of Anatomy and Physiology 10e; Cutnell/College Physics;
Huffman/Psychology 7e; McDaniel/Marketing Research Essentials 4e;
Voet/Biochemistry 3e; Weygandt/Managerial Accounting 2e; and
Strahler/Introducing Physical Geography 3e.
Europe: Revenue in fiscal year 2003, excluding foreign translation exchange
gains from Wiley's European operations, was up 21% over the prior year,
reflecting the GIT Verlag and A&M Publishing acquisitions and organic growth.
Primary contributors to the organic growth were the journals program, as well as
indigenous P/T titles, such as the global bestseller, Prechter/Conquer the
Crash. Results in Germany were negatively affected by a weak advertising market
and sluggish book sales. The direct contribution margin for Europe was 32.9% of
revenue in fiscal year 2003 and 34.5% of revenue in fiscal year 2002. The
decrease in contribution margin was principally due to product mix.
In March, Wiley Europe signed an agreement with The Cochrane Collaboration for
the publication of the Cochrane Systematic Reviews in evidence-based medicine.
These online databases are widely regarded as the world's most authoritative
source of information on the effectiveness of health care interventions.
Asia, Australia, and Canada: Wiley's Asian, Australian, and Canadian operations
recorded strong results for the year. Revenue in fiscal year 2003, excluding
foreign exchange translation gains, increased over the prior year by 24%.
Including the effects of foreign exchange translation gains, revenue increased
over the prior year by 28%. These results were driven by the addition of Hungry
Minds, as well as the performance of the P/T and Higher Education programs in
Canada, and strong overall growth throughout Asia. Rapid growth of the Company's
subscription and translation rights businesses continued in Asia, notably in
China and India. The fourth quarter was adversely affected somewhat by the war
in Iraq and the SARS outbreak.
Indigenous P/T publishing programs grew in Wiley's Asian, Australian, and
Canadian businesses. Two titles, Privatising China by Carl Walter, the COO of
J.P. Morgan, and Capitalist China by Jonathan Wotzel, a senior partner at
McKinsey Consulting, reflect the importance of the growing market in China, and
also Wiley's success in partnering with prestigious companies. Two Wiley
Australia titles, Westfield/HIH, The Inside Story of Australia's Biggest
Corporate Collapse and King/Gallipoli, published during the quarter to great
acclaim. Wiley Canada had its best year ever, in part on the strength of the For
Dummies brand.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance was $82.0 million at the end of
fiscal year 2004, compared with $33.2 million a year earlier. Cash provided by
operating activities of $212.2 million improved by $43.1 million over the prior
year. The improvement was mainly due to higher net income after giving effect to
a $6.8 million improvement in non-cash charges. The utilization of deferred tax
benefits and higher depreciation was partially offset by higher pension
contributions. Pension contributions in fiscal year 2004 were $21.2 million,
compared to $5.3 million in the prior year. The increase in contributions over
the prior year was principally due to higher funding requirements caused by
lower plan asset market values as of April 30, 2003. The estimated pension
contributions anticipated for fiscal year 2005 are $6.3 million.
Cash provided from Operating Assets and Liabilities was $1.4 million in fiscal
year 2004, compared to a use of $33.3 million in the prior year. In fiscal year
2004, increases in accounts receivable were due to higher fourth quarter
professional/trade sales partially offset by accrued compensation. Prior year
uses include investments in working capital to expand new businesses acquired
and rent payments, for previously accrued for vacated facilities related to the
relocation of the Company's headquarters.
Cash used for investing activities for fiscal year 2004 was $91.7 million
compared to $125.6 million in fiscal year 2003. Lower cash used for property and
equipment and acquisitions was partially offset by higher investments in product
development. Additions to property plant and equipment in fiscal year 2004 are
principally computer hardware and software to support customer products and
improve productivity. Fiscal year 2003 investing activity in property and
equipment included $33.0 million for the purchase of a building in the United
Kingdom, additions to a building in Germany, and leasehold improvements at the
Company's new Hoboken, N.J. headquarters. Cash used for investing activities in
fiscal year 2002 included the acquisition of Hungry Minds Inc. (see footnotes to
the financial statements).
Cash used for financing activities was $72.4 million in fiscal year 2004, as
compared to $52.5 million in fiscal year 2003. Financing activity for fiscal
year 2004 and 2003 included a $35 and $30 million of scheduled installment
payments of long-term debt and $26.1 million and $11.7 million of shares
repurchased under the Company's stock repurchase program, respectively. In
fiscal year 2002 the Company took on new debt to finance Hungry Minds Inc. and
other acquisitions.
Effective July 17, 2003 the Company increased the quarterly dividend to all
shareholders by $0.015 to $0.065 per share.
During fiscal year 2004, the Company repurchased 937,150 Class A Common shares
at an average price of $27.90 per share for a total cost of $26.1 million.
Cumulatively through April 30, 2004, the Company has repurchased 4.2 million
shares Class A Common shares at an average price of $19.89 per share under all
stock repurchase programs.
The Company's operating cash flow is affected by the seasonality of its U.S.
Higher Education business and receipts from its journal subscriptions. Journal
receipts occur primarily during November and December from companies commonly
referred to as journal subscription agents. Reference is made to the Credit Risk
section, which follows, for a description of the impact on the Company as it
relates to journal agents' financial position and liquidity. Sales in the U.S.
higher education market tend to be concentrated in June through August, and
again in November through January.
The Company normally requires increased funds for working capital from May
through September. Subject to variations that may be caused by fluctuations in
inventory levels or in patterns of customer payments, the Company's normal
operating cash flow is not expected to vary materially in the near term.
Working capital at April 30, 2004 was $17.6 million. Current liabilities include
$127.2 million of deferred subscription revenue related to journals for which
the cash has been received and 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. Working capital at April 30, 2003 was
negative $60.8 million, including $118.6 million of deferred subscription
revenue. The increase in working capital over the prior year was mainly due to
additional cash on hand.
The Company has adequate cash and cash equivalents available, as well as
short-term lines of credit to finance its short-term seasonal working capital
requirements. The Company does not have any off-balance-sheet debt.
Estimated projected product development, and property and equipment capital
spending for fiscal year 2005 is forecast to be approximately $70 million and
$30 million, respectively. These investments will be funded primarily from
internal cash generation, the liquidation of cash equivalents, and the use of
short-term lines of credit.
A summary of contractual obligations and commercial commitments is as follows:
Dollars in millions Payments due by period
- -------------------------------------------------------------------
Less
Contractual Than 1 1-3 4-5 After 5
Obligation Total Year Years Years Years
- --------------------- ---------- -------- -------- -------- -------
Total Debt $200.0 - 200.0 - -
Operating Lease 235.3 24.5 46.5 43.9 120.4
Obligations ---------- -------- -------- -------- -------
Total Contractual $435.3 24.5 246.5 43.9 120.4
Cash Obligations ---------- -------- -------- -------- -------
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 investments 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
instruments for trading or speculative purposes.
Copyrights, Patents, Trademarks, and Environment
Substantially all of the Company's publications are protected by copyright,
either in its own name, in the name of the author of the work, or in the name of
the sponsoring professional society. Such copyrights protect the Company's
exclusive right to publish the work in the United States and in many countries
abroad for specified periods: in most cases the author's life plus 70 years, but
in any event a minimum of 28 years for works published prior to 1978 and 35
years for works published thereafter.
The Company does not own any other material patents, franchises, or concessions,
but does have registered trademarks and service marks in connection with its
publishing businesses. The Company's operations are generally not affected by
environmental legislation.
Interest Rates
The Company had $200.0 million of variable rate loans outstanding at April 30,
2004, which approximated fair value. The Company did not use any derivative
financial investments to manage this exposure. A hypothetical 1% change in
interest rates for this variable rate debt would affect net income and cash flow
by approximately $1.2 million.
Foreign Exchange Rates
The Company is exposed to foreign exchange movements primarily in sterling,
euros, Canadian and Australian dollars, and certain Asian currencies.
Under certain circumstances, the Company may enter into derivative financial
instruments in the form of forward contracts as a hedge against foreign currency
fluctuation of specific transactions, including inter-company purchases. The
company does not use derivative financial instruments for trading or speculative
purposes.
During the first quarter of fiscal year 2004 the Company entered into derivative
contracts to hedge potential foreign currency volatility on a portion of fiscal
year 2004 inventory purchases in Australia and Canada. The contracts were
designated as cash flow hedges. All of the derivative foreign exchange contracts
settled during fiscal year 2004 resulting in a pretax loss of approximately $0.3
million, which is recognized in cost of sales as the related inventory is sold.
At April 30, 2004, the Company had no open foreign exchange forward contracts.
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 6% of total consolidated revenue, the top 10 book customers
account for approximately 25% of total consolidated revenue and approximately
50% of total gross trade accounts receivable at April 30, 2004. To mitigate its
credit risk exposure, the Company obtains credit insurance where available and
economically justifiable.
In the journal publishing business, subscriptions are primarily sourced through
journal 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 is 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 22% of total consolidated revenue and no one agent
accounts for more than 7% of total consolidated revenue. Insurance for these
accounts is not commercially feasible and/or available. A journal subscription
agent, Rowecom Inc., filed for bankruptcy in January 2003. The bankruptcy had no
material affect on the Company's consolidated financial statements.
Effects of Inflation and Cost Increases
The Company, from time to time, experiences cost increases reflecting, in part,
general inflationary factors. To mitigate the effect of cost increases, the
Company has implemented a number of initiatives, including various steps to
reduce production and manufacturing costs. In addition, selling prices have been
selectively increased as competitive conditions have permitted. The Company
anticipates that it will be able to continue this approach in the future.
Critical Accounting Policies
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the reported amount 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. Management continually evaluates the basis for its estimates;
however, actual results could differ from those estimates, which could affect
the reported results from operations. Set forth below is a discussion of the
Company's critical accounting policies and the basis for estimates used.
Revenue Recognition: Revenue is recognized when products have been shipped or
when services have been rendered and when the following additional criteria have
been met: persuasive evidence that an arrangement or contract exists; delivery
has occurred or services have been rendered; the price to the customer is fixed
or determinable; and collectibility is reasonably assured. Collectibility is
evaluated based on the amount involved, the credit history of the customer, and
the status of the customer's account with the Company.
Allowance for Doubtful Accounts: The estimated allowance for doubtful accounts
is based on a review of the aging of the accounts receivable balances, the
historical write-off experience, a credit evaluation of the customer, and any
amount of credit insurance coverage. A change in the evaluation of a customer's
credit and/or the amount of credit insurance available could affect the
estimated allowance.
Allowance for Sales Returns: The estimated allowance for sales returns is based
on a review of the historical return patterns associated with the various sales
outlets, as well as current market trends in the businesses in which we operate.
A change in the pattern or trends in returns could affect the estimated
allowance.
Reserve for Inventory Obsolescence: Inventories are carried at cost or market,
whichever is lower. A reserve for inventory obsolescence is estimated based on a
review of damaged, obsolete, or otherwise unsaleable inventory. The review
encompasses historical unit sales trends by title; current market conditions,
including estimates of customer demand; and publication revision cycles. A
change in sales trends could affect the estimated reserve.
Allocation of Acquisition Purchase Price to Assets Acquired and Liabilities
Assumed: In connection with acquisitions, the Company allocates the cost of the
acquisition to the assets acquired and the liabilities assumed based on
estimates of the fair value of such items including goodwill, other intangible
assets with indefinite lives, and other intangible assets and the related useful
lives. Such estimates include expected cash flows to be generated by those
assets and the expected useful lives based on historical experience, current
market trends, and synergies to be achieved from the acquisition and expected
tax basis of assets acquired. For major acquisitions, the Company uses
independent appraisers to confirm the reasonableness of such estimates. A change
in the useful lives of intangible assets other than goodwill could affect the
Company's amortization expense for the year.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase
price paid over the fair value of the net assets of the business acquired. Other
intangible assets principally consist of branded trademarks, acquired
publication rights and non-compete agreements. The Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142), effective May 1, 2002. In accordance with SFAS 142, goodwill and
indefinite-lived intangible assets are no longer amortized but are reviewed at
least annually for impairment, or more often if events or circumstances occur
which would more likely than not reduce the fair value of a reporting unit below
its carrying amount. Other finite-lived intangible assets continue to be
amortized over their useful lives.
Acquired publication rights with definitive lives are amortized on a
straight-line basis over periods ranging from 5 to 30 years. Noncompete
agreements are amortized over the terms of the individual agreement. Prior to
fiscal 2003, goodwill and other intangible assets were amortized using the
straight-line method over periods ranging from 5 to 40 years for acquisitions
prior to July 1, 2001.
Impairment of Long-Lived Assets: The Company adopted Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets (SFAS 144) effective May 1, 2002. The initial adoption of SFAS
144 did not have a significant impact on the Company's results of operations or
financial position. Under SFAS 144, long-lived assets, except goodwill and
indefinite-lived intangible assets, are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the assets to future net cash flows estimated by the Company
to be generated by such assets. If such assets are considered to be impaired,
the impairment to be recognized is the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
recorded at the lower of carrying value or estimated net realizable value.
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 is
effective for fiscal years beginning after July 15, 2003. The new guidance is
not expected to have a material impact on the Company's consolidated financial
statements.
In December 2003, the Financial Accounting Standards Board revised SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
revision retained the disclosure requirements contained in the original SFAS No.
132, but added additional disclosures about the types of plan assets, investment
strategy, measurement dates, plan obligations, cash flows, and components of net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The annual disclosure provisions of SFAS No. 132, as
revised, are effective for fiscal years ending after December 15, 2003, and are
included in the notes to the Company's April 30, 2004 Consolidated Financial
Statements.
In December 2003, the Financial Accounting Standards Board (FASB) revised
interpretation No. 46, Consolidation of Variable Interest Entities (Fin 46R), an
Interpretation of ARB No. 51. Public companies must apply the revised
interpretation immediately to entities created after January 31, 2003, no later
than the end of the first reporting period that ends after December 15, 2003 and
no later than the first reporting period that ends after March 15, 2004 for all
other entities. Fin 46R did not have a material impact on the Company's
financial position or results of operations.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative instruments and Hedging Activities." SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS 133. The
amendments set forth in SFAS 149 require that contracts with comparable
characteristics be accounted for similarly. SFAS 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. SFAS 149 did not have a material impact on the Company's
financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement requires that certain financial instruments be classified as
liabilities, instead of equity, in statements of financial position. SFAS 150
was effective August 1, 2003 and did not have an impact on the Company's
financial position or results of operations.
"Safe Harbor" Statement Under the
Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements concerning the Company's
operations, performance, and financial condition. Reliance should not be placed
on forward-looking statements, as actual results may differ materially from
those in any forward-looking statements. Any such forward-looking statements are
based upon a number of assumptions and estimates that are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, and are subject to change based on many important factors. Such factors
include, but are not limited to (i) the level of investment in new technologies
and products; (ii) subscriber renewal rates for the Company's journals; (iii)
the financial stability and liquidity of journal subscription agents; (iv) the
consolidation of book wholesalers and retail accounts; (v) the market position
and financial stability of key online retailers; (vi) the seasonal nature of the
Company's educational business and the impact of the used-book market; (vii)
worldwide economic and political conditions; and (viii) the Company's ability to
protect its copyrights and other intellectual property worldwide (ix) other
factors detailed from time to time in the Company's filings with the Securities
and Exchange Commission. The Company undertakes no obligation to update or
revise any such forward-looking statements to reflect subsequent events or
circumstances.
Results by Quarter (Unaudited)
Dollars in millions except per share data
2004 2003
- ------------------------- ------------------- -----------------------
Revenue
First Quarter $ 219.7 $ 206.4
Second Quarter 228.9 223.0
Third Quarter 242.4 221.2
Fourth Quarter 232.0 203.4
- ------------------------- ------------------- -----------------------
Fiscal Year $ 923.0 $ 854.0
- ------------------------- ------------------- -----------------------
Operating Income
First Quarter (a) $ 33.2 $ 30.7
Second Quarter 36.9 35.9
Third Quarter 43.9 36.9
Fourth Quarter 15.4 16.8
- ------------------------- ------------------- -----------------------
Fiscal Year (a) $ 129.4 $ 120.3
- ------------------------- ------------------- -----------------------
Net Income
First Quarter (a) $ 21.8 $ 20.0
Second Quarter (b) 25.6 34.7
Third Quarter (c) 31.3 24.2
Fourth Quarter 10.1 8.4
- ------------------------- ------------------- -----------------------
Fiscal Year (a) (b)(c) $ 88.8 $ 87.3
- ------------------------- ------------------- -----------------------
Income Per Share Diluted Basic Diluted Basic
------------- ---------- ------------ ----------
First Quarter (a) $.35 $.35 $.32 $.32
Second Quarter (b) .41 .41 .55 .57
Third Quarter (c) .50 .51 .39 .39
Fourth Quarter .16 .16 .13 .13
Fiscal Year (a)(b)(c) 1.41 1.44 1.38 1.42
----------------------- ------------- ---------- ------------ ----------
(a) The Company completed the relocation of its headquarters to Hoboken,
New Jersey in the first quarter of fiscal year 2003. The amounts
reported above include a charge associated with the relocation of
approximately $2.5 million, or $1.5 million after tax equal to $0.02
per diluted share in fiscal year 2004.
(b) The second quarter of fiscal year 2003 includes a one-time tax benefit
of $12 million, equal to $0.19 per diluted share, relating to an
increase in the tax-deductible net asset basis of a European
subsidiary's assets.
(c) In the third quarter of fiscal year 2004, the Company recognized a net
tax benefit of $3.0 million, equal to $0.05 per diluted share, related
to the resolution of certain state and federal tax matters, and an
adjustment to accrued foreign taxes.
Quarterly Share Prices, Dividends, and Related Stockholder Matters
The Company's Class A and Class B shares are listed on the New York Stock
Exchange under the symbols JWa and JWb, respectively. Dividends per share and
the market price range by fiscal quarter for the past two fiscal years were as
follows:
Class A Common Stock Class B Common Stock
---------------------- ----------------------
Market Price Market Price
Divi- --------------- Divi- --------------
dends High Low dends High Low
----------------- ----- ------- ------- ------- ------ -------
2004
First Quarter $.065 $27.21 $24.07 $.065 $27.10 $24.13
Second Quarter .065 28.26 25.80 .065 28.25 25.70
Third Quarter .065 26.83 24.24 .065 26.77 24.40
Fourth Quarter .065 31.58 26.28 .065 31.50 26.26
----------------- ----- ------- ------- ------- ------ -------
2003
First Quarter $.050 $27.30 $19.61 $.050 $27.31 $19.56
Second Quarter .050 23.30 20.13 .050 23.20 20.20
Third Quarter .050 24.20 21.27 .050 24.16 21.35
Fourth Quarter .050 24.51 21.51 .050 24.60 21.64
As of April 30, 2004, the approximate number of holders of the Company's Class A
and Class B Common Stock were 1,184 and 138 respectively, based on the holders
of record and other information available to the Company.
The Company's credit agreement contains certain restrictive covenants related to
the payment of dividends and share repurchases. Under the most restrictive
covenant, approximately $214 million was available for such restricted payments.
Subject to the foregoing, the Board of Directors considers quarterly the payment
of cash dividends based upon its review of earnings, the financial position of
the Company, and other relevant factors.
Selected Financial Data
For the years ended April 30
--------------------------------------------------------------------------------------------------
Dollars in thousands except per
share data 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Revenue $922,962 $853,971 $734,396 $613,790 $606,024
Operating Income 129,379 120,261 (a) 87,763 (a)(b) 95,424 (b) 89,004 (b)
Net Income 88,840 (c) 87,275 (a)(c) 57,316 (a)(b) 58,918 (b) 52,388 (b)
Working Capital 17,641 (d) (60,814)(d) (66,915) (d) (82,564) (d) (98,094) (d)
Total Assets 1,014,582 972,240 896,145 588,002 569,337
Long-Term Debt 200,000 200,000 235,000 65,000 95,000
Shareholders' Equity 415,064 344,004 276,650 220,023 172,738
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Income Per Share
Diluted $ 1.41 (c) $ 1.38 (a)(c) $ .91 (a)(b) $ .93 (b) $ .81 (b)
Basic 1.44 (c) 1.42 (a)(c) .94 (a)(b) .97 (b) .85 (b)
Cash Dividends
Class A Common .26 .20 .18 .16 .14
Class B Common .26 .20 .18 .16 .13
(a) In the fourth quarter of fiscal year 2002 Wiley finalized its
commitment to relocate the Company's headquarters to Hoboken, N.J. The
relocation was completed in the first quarter of fiscal year 2003. The
amounts reported above include an unusual charge associated with the
relocation of approximately $2.5 million, or $1.5 million after tax
equal to $0.02 per diluted share in fiscal year 2003, and $12.3
million, or $7.7 million after tax equal to $0.12 per diluted share,
in fiscal year 2002.
(b) At the beginning of fiscal year 2003, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 142: "Goodwill and Other
Intangible Assets." In accordance with SFAS No. 142, amortization of
goodwill and indefinite life intangibles is discontinued. Fiscal year
2002 includes amortization, which is no longer recorded of $9.6
million ($7.8 after-tax).
(c) In fiscal year 2004, the Company recognized a net tax benefit of $3.0
million, equal to $0.05 per diluted share, related to the resolution
of certain state and federal tax matters, and an adjustment to accrued
foreign taxes. Fiscal year 2003 includes a one-time tax benefit of $12
million, equal to $0.19 per diluted share, relating to an increase in
the tax-deductible net asset basis of a European subsidiary's assets.
(d) Working capital is reduced or negative as a result of including in
current liabilities the deferred subscription revenue related to
journal subscriptions for which the cash has been received and that
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.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
John Wiley & Sons, Inc.:
We have audited the accompanying consolidated statements of financial position
of John Wiley & Sons, Inc. ("the Company") and subsidiaries as of April 30, 2004
and 2003, and the related consolidated statements of income, shareholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended April 30, 2004. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule (as listed in the index to Item 8). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of John Wiley & Sons,
Inc. and subsidiaries as of April 30, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As described in the "Goodwill and Other Intangible Assets" Note to the
consolidated financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," as of May
1, 2002.
/S/ KPMG LLP
New York, New York
June 17, 2004
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
John Wiley & Sons, Inc.:
We consent to the incorporation by reference in the Registration Statement Nos.
333-93691, 33-60268, 2-65296, 2-95104, 33-29372 and 33-62605 of John Wiley &
Sons, Inc. (the "Company") of our report dated June 17, 2004, with respect to
the consolidated statements of financial position of John Wiley & Sons, Inc. as
of April 30, 2004 and 2003, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows, for each of the
years in the three-year period ended April 30, 2004, and the related financial
statement schedule, which report appears in the April 30, 2004 annual report on
Form 10-K of John Wiley & Sons, Inc.
Our report refers to the Company's adoption of Statement of Financial Accounting
Standards No. 142 as of May 1, 2002, as more fully described in the "Goodwill
and Other Intangible Assets" Note to the consolidated financial statements.
/S/ KPMG LLP
New York, New York
July 12, 2004
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
John Wiley & Sons, Inc., and Subsidiaries April 30
--------------------------------
Dollars in thousands 2004 2003
================================================================================================================
Assets
Current Assets
Cash and cash equivalents..........................................$ 82,027 $ 33,241
Accounts receivable................................................ 127,224 107,242
Taxes receivable................................................... 2,768 9,657
Inventories........................................................ 83,789 83,337
Deferred income tax benefits....................................... 18,113 27,314
Prepaid expenses................................................... 10,085 11,524
------------- ------------
Total Current Assets............................................... 324,006 272,315
------------- ------------
Product Development Assets...................................................... 60,755 60,842
Property and Equipment.......................................................... 117,305 114,870
Intangible Assets............................................................... 276,440 280,872
Goodwill........................................................................ 194,893 192,186
Deferred Income Tax Benefits.................................................... 18,976 30,597
Other Assets.................................................................... 22,207 20,558
------------- ------------
Total Assets....................................................................$ 1,014,582 $ 972,240
============= ============
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt..................................$ - $ 35,000
Accounts and royalties payable..................................... 68,338 71,296
Deferred subscription revenues..................................... 127,224 118,577
Accrued income taxes............................................... 19,338 30,632
Deferred income taxes.............................................. 5,721 -
Other accrued liabilities.......................................... 85,744 77,624
------------- ------------
Total Current Liabilities.......................................... 306,365 333,129
------------- ------------
Long-Term Debt.................................................................. 200,000 200,000
Accrued Pension Liability....................................................... 48,505 54,907
Other Long-Term Liabilities..................................................... 31,757 28,192
Deferred Income Taxes........................................................... 12,891 12,008
Shareholders' Equity
Preferred Stock, $1 par value: Authorized - 2 million, Issued - zero - -
Class A Common Stock, $1 par value: Authorized - 180 million,
Issued - 68,465,302 and 68,149,702............................ 68,465 68,150
Class B Common Stock, $1 par value: Authorized - 72 million,
Issued - 14,724,960 and 15,040,560............................ 14,725 15,041
Additional paid-in capital......................................... 45,887 34,103
Retained earnings.................................................. 441,533 368,963
Accumulated other comprehensive gain (loss):
Foreign currency translation adjustment....................... 18,123 10,134
Minimum liability pension adjustment.......................... (15,926) (17,305)
Unearned deferred compensation..................................... (2,134) (1,283)
------------- ------------
570,673 477,803
Less Treasury Shares At Cost (Class A - 18,011,826 and 18,076,002;
Class B - 3,484,096 and 3,484,096)................................. (155,609) (133,799)
------------- ------------
Total Shareholders' Equity...................................................... 415,064 344,004
------------- ------------
Total Liabilities and Shareholders' Equity......................................$ 1,014,582 $ 972,240
The accompanying notes are an integral part of the consolidated financial
statements
CONSOLIDATED STATEMENTS OF INCOME
John Wiley & Sons, Inc., and Subsidiaries For the years ended April 30
-----------------------------------------------
Dollars in thousands except per share data 2004 2003 2002
=======================================================================================================================
Revenue.......................................................... $922,962 $853,971 $734,396
Costs and Expenses
Cost of sales............................................ 308,905 288,925 243,196
Operating and administrative expenses.................... 474,902 432,700 373,463
Amortization of intangibles.............................. 9,776 9,620 17,662
Unusual item - relocation-related expenses............... - 2,465 12,312
--------------------------------------------------
Total Costs and Expenses................................. 793,583 733,710 646,633
--------------------------------------------------
Operating Income.................................................. 129,379 120,261 87,763
Interest Income and Other......................................... 890 262 835
Interest Expense.................................................. (5,159) (7,964) (7,480)
--------------------------------------------------
Income Before Taxes............................................... 125,110 112,559 81,118
Provision for Income Taxes........................................ 36,270 25,284 23,802
--------------------------------------------------
Net Income........................................................ $88,840 $87,275 $57,316
--------------------------------------------------
Income Per Share
Diluted.................................................. $1.41 $1.38 $0.91
Basic.................................................... $1.44 $1.42 $0.94
Cash Dividends Per Share
Class A Common........................................... $0.26 $0.20 $0.18
Class B Common........................................... $0.26 $0.20 $0.18
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
John Wiley & Sons, Inc., and Subsidiaries For the years ended April 30
-----------------------------------------------
Dollars in thousands 2004 2003 2002
===============================================================================================================================
Operating Activities
Net Income...................................................................... $ 88,840 $ 87,275 $ 57,316
Noncash Items
Amortization of intangibles............................................ 9,776 9,620 17,662
Amortization of composition costs...................................... 31,852 29,923 25,653
Depreciation of property and equipment................................. 29,739 23,420 16,007
Reserves for returns, doubtful accounts, and obsolescence.............. 9,012 11,219 6,675
Deferred income taxes.................................................. 26,685 11,224 451
Net pension expense, net of contributions.............................. (8,603) 5,178 4,269
Write-off of investments............................................... - - 4,989
Unusual item - accrued relocation-related expenses..................... - - 12,312
Other 23,518 24,552 12,254
Changes in Operating Assets and Liabilities
Decrease (increase) in accounts receivable............................. (16,627) (9,346) (3,520)
Decrease (increase) in taxes receivable................................ 7,141 15,841 (9,022)
Decrease (increase) in inventories..................................... 788 (14,594) (4,657)
Increase (decrease) in deferred subscription revenues.................. 7,365 (4,706) 6,579
Increase (decrease) in other accrued liabilities....................... 12,834 (19,451) (169)
Net change in other operating assets and liabilities................... (10,108) (1,027) 5,934
Payment of acquisition-related liabilities............................. - - (12,367)
-----------------------------------------------
Cash Provided by Operating Activities.................................. 212,212 169,128 140,366
-----------------------------------------------
Investing Activities
Additions to product development assets................................ (59,426) (51,835) (48,039)
Additions to property and equipment.................................... (29,222) (63,221) (33,643)
Acquisitions, net of cash acquired..................................... (3,070) (10,500) (232,393)
-----------------------------------------------
Cash Used for Investing Activities..................................... (91,718) (125,556) (314,075)
-----------------------------------------------
Financing Activities
Borrowings of long-term debt........................................... - - 200,000
Repayment of long-term debt............................................ (35,000) (30,000) (30,000)
Cash dividends......................................................... (16,270) (12,344) (11,015)
Purchase of treasury shares............................................ (26,126) (11,661) (1,880)
Proceeds from issuance of stock on option exercises and other.......... 4,958 1,500 2,813
-----------------------------------------------
Cash Provided by (Used for) Financing Activities....................... (72,438) (52,505) 159,918
-----------------------------------------------
Effects of Exchange Rate Changes on Cash............................... 730 2,469 549
-----------------------------------------------
Cash and Cash Equivalents
Increase (decrease) for year........................................... 48,786 (6,464) (13,242)
Balance at beginning of year........................................... 33,241 39,705 52,947
-----------------------------------------------
Balance at end of year................................................. $ 82,027 $ 33,241 $ 39,705
===============================================
Supplemental Information
Acquisitions
Fair value of assets acquired.......................................... $ 3,070 $ 10,530 $ 307,915
Liabilities assumed.................................................... - (30) (75,522)
-----------------------------------------------
Cash Paid for Businesses Acquired...................................... $ 3,070 $ 10,500 $ 232,393
-----------------------------------------------
Cash Paid During the Year for
Interest............................................................... $ 4,620 $ 7,496 $ 6,879
Income taxes (net of refunds).......................................... $ 11,801 $ 3,859 $ 17,080
===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Accumulated
Unearned Other Comp- Total
Common Common Additional Deferred rehensive Share-
John Wiley & Sons, Inc., and Subsidiaries Stock Stock Paid-in Retained Treasury Comp- Income holder's
Dollars in thousands Class A Class B Capital Earnings Stock ensation (Loss) Equity
====================================================================================================================================
Balance at May 1, 2001 $ 68,037 $ 15,153 $ 18,900 $ 247,731 $ (124,926) $(1,755) $ (3,117) $ 220,023
Director Stock Plan Issuance 29 10 39
Shares Issued Under Employee Benefit Plans 1,121 336 1,457
Purchase of Treasury Shares (1,880) (1,880)
Exercise of Stock Options 6,788 3,126 9,914
Class A Common Stock Dividends Declared (8,918) (8,918)
Class B Common Stock Dividends Declared (2,097) (2,097)
Other 30 (29) 380 381
Comprehensive Income, Net of Tax:
Net income 57,316 57,316
Foreign currency translation adjustments 583 583
Transition hedge adjustment (272) (272)
Derivative cash flow hedges 104 104
----------
Total Comprehensive Income 57,731
-------------------------------------------------------------------------------------
Balance at May 1, 2002 $ 68,067 $ 15,124 $ 26,838 $ 294,032 $ (123,334) $(1,375) $ (2,702) $ 276,650
Shares Issued Under Employee Benefit Plans 4,990 656 5,646
Purchase of Treasury Shares (11,661) (11,661)
Exercise of Stock Options 2,275 540 2,815
Class A Common Stock Dividends Declared (10,024) (10,024)
Class B Common Stock Dividends Declared (2,320) (2,320)
Other 83 (83) 92 92
Comprehensive Income, Net of Tax:
Net income 87,275 87,275
Foreign currency translation adjustments 12,668 12,668
Derivative cash flow hedges 168 168
Minimum liability pension adjustment, net
of $9,299 of tax (17,305) (17,305)
----------
Total Comprehensive Income 82,806
-------------------------------------------------------------------------------------
Balance at May 1, 2003 $ 68,150 $ 15,041 $ 34,103 $ 368,963 $ (133,799) $(1,283) $ (7,171) $ 344,004
Shares Issued Under Employee Benefit Plans 4,203 1,371 5,574
Purchase of Treasury Shares (26,126) (26,126)
Exercise of Stock Options 7,581 2,945 10,526
Class A Common Stock Dividends Declared (13,318) (13,318)
Class B Common Stock Dividends Declared (2,952) (2,952)
Other 315 (316) (851) (852)
Comprehensive Income, Net of Tax:
Net income 88,840 88,840
Foreign currency translation adjustments 7,989 7,989
Minimum liability pension adjustment, net
of ($741) of tax 1,379 1,379
----------
Total Comprehensive Income 98,208
--------------------------------------------------------------------------------------
Balance at April 30, 2004 $ 68,465 $ 14,725 $ 45,887 $ 441,533 $ (155,609) $(2,134) $ 2,197 $ 415,064
======================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Notes to Consolidated Financial Statements
The Company, founded in 1807, was incorporated in the state of New York on
January 15, 1904. (As used herein the term "Company" means John Wiley & Sons,
Inc., and its subsidiaries and affiliated companies, unless the context
indicates otherwise).
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.
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company. Investments in entities in which the Company has at
least a 20%, but less than a majority interest, are accounted for using the
equity method of accounting. Investments in entities in which the Company has
less than a 20% ownership and in which it does not exercise significant
influence are accounted for using the cost method of accounting. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior-year amounts have been reclassified to conform to the current
year's presentation.
Use of Estimates: The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the United States
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.
Revenue Recognition: In accordance with SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements," the Company recognizes revenue
when the following criteria are met: persuasive evidence that an arrangement
exists; delivery has occurred or services have been rendered; the price to the
customer is fixed or determinable; and collectibility is reasonably assured. If
all of the above criteria have been met, revenue is principally recognized upon
shipment of products or when services have been rendered. Subscription revenue
is generally collected in advance, and is deferred and recognized as earned when
the related issue is shipped or made available online, or over the term of the
subscription as services are rendered.
Sales Returns and Doubtful Accounts: The Company provides an estimated allowance
for doubtful accounts and for future returns on sales made during the year
principally based on historical experience. The allowance for doubtful accounts
and returns (estimated returns net of inventory and royalty costs) is shown as a
reduction of accounts receivable in the accompanying consolidated balance sheets
and amounted to $75.1 million and $74.7 million at April 30, 2004 and 2003,
respectively.
Inventories: Inventories are stated at cost or market, whichever is lower. U.S.
book inventories aggregating $66.7 million and $68.1 million at April 30, 2004
and 2003, respectively, are valued using the last-in, first-out (LIFO) method.
All other inventories are valued using the first-in, first-out method.
Product Development Assets: Product development assets consist of composition
costs and royalty advances to authors. Costs associated with developing any
publication are expensed until the product is determined to be commercially
viable. Composition costs, primarily representing the costs incurred to bring an
edited commercial manuscript to publication including typesetting, proofreading,
design and illustration, etc., are capitalized and generally amortized on a
double-declining basis over estimated useful lives, ranging from 1 to 3 years.
Royalty advances to authors are capitalized and, upon publication, are recovered
as royalties are earned by the authors based on sales of the published works.
Author advances are periodically reviewed for recoverability.
Internal-Use Software Costs: Costs incurred during the application development
stage to obtaining or develop computer software for internal use including costs
of materials and services, and payroll and payroll-related costs for employees
who are directly associated with the software project, are capitalized and
amortized over the expected useful life of the related software. Costs incurred
during the preliminary project stage, as well as maintenance, training, and
upgrades that do not result in additional functionality, are expensed as
incurred.
Advertising Expense: The cost of advertising is expensed as incurred.
Depreciation and Amortization: Buildings, leasehold improvements, and capital
leases are amortized over the lesser of the estimated useful lives of the assets
up to 40 years, or the duration of the various leases, using the straight-line
method. Furniture and fixtures are depreciated principally on the straight-line
method over estimated useful lives ranging from 3 to 10 years. Computer
equipment and capitalized software are amortized on a straight-line basis over
estimated useful lives ranging from 3 to 5 years.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase
price paid over the fair value of the net assets of the business acquired. Other
intangible assets principally consist of branded trademarks, acquired
publication rights and non-compete agreements. The Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
(SFAS 142), effective May 1, 2002. In accordance with SFAS 142, goodwill and
indefinite-lived intangible assets are no longer amortized but are reviewed at
least annually for impairment, or more often if events or circumstances occur
which would more likely than not reduce the fair value of a reporting unit below
its carrying amount. The Company evaluates the recoverability of goodwill and
indefinite lived intangible assets using a two-step impairment test approach at
the reporting unit level. In the first step the fair value for the reporting
unit is compared to its book value including goodwill. In the case that the fair
value of the reporting unit is less than the book value, a second step is
performed which compares the implied fair value of the reporting unit's goodwill
to the book value of the goodwill. The fair value for the goodwill is determined
based on the difference between the fair values of the reporting units and the
net fair values of the identifiable assets and liabilities of such reporting
units. If the fair value of the goodwill is less than the book value, the
difference is recognized as an impairment. Other finite-lived intangible assets
continue to be amortized over their useful lives.
Acquired publication rights with definitive lives are amortized on a
straight-line basis over periods ranging from 5 to 30 years. Noncompete
agreements are amortized over the terms of the individual agreement. Prior to
fiscal 2003, goodwill and other intangible assets were amortized using the
straight-line method over periods ranging from 5 to 40 years for acquisitions
prior to July 1, 2001.
Impairment of Long-Lived Assets: The Company adopted Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets (SFAS 144) effective May 1, 2002. The initial adoption of SFAS
144 did not have a significant impact on the Company's results of operations or
financial position. Under SFAS 144, long-lived assets, except goodwill and
indefinite-lived intangible assets, are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the assets to future net cash flows estimated by the Company
to be generated by such assets. If such assets are considered to be impaired,
the impairment to be recognized is the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
recorded at the lower of carrying value or estimated net realizable value.
In fiscal year 2002, the Company assessed the carrying value and recoverability
of certain investments based on analysis of undiscounted future cash flows. As a
result, $5.0 million was written off and charged against operating income in
fiscal year 2002.
Derivative Financial Instruments - Foreign Exchange Contracts: The Company, from
time to time, enters into forward exchange contracts as a hedge against foreign
currency asset and liability commitments, and anticipated transaction exposures.
The Company does not use financial instruments for trading or speculative
purposes.
The Company accounts for its derivative instruments in accordance with SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended.
Accordingly, 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 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 period 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, 2002, resulted in a transition adjustment loss of $.3
million after taxes, 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 first quarter of fiscal year 2004 the Company entered into derivative
contracts to hedge potential foreign currency volatility on a portion of fiscal
year 2004 inventory purchases. The contracts were designated as cash flow hedges
and were considered by management to be highly effective. All of the derivative
foreign exchange contracts settled during fiscal year 2004 resulting in a loss
of approximately $0.3 million, which is recognized in cost of sales as the
related inventory is sold.
At April 30, 2004, there were no open foreign exchange derivative contracts.
Included in operating and administrative expenses were net foreign exchange
transaction losses of approximately $1.4 million, $.7 million, and $.3 million
in fiscal years 2004, 2003, and 2002, respectively.
Foreign Currency Translation: The Company translates the results of operations
of its international subsidiaries using average exchange rates during each
period, whereas balance sheet accounts are translated using exchange rates at
the end of each period. Currency translation adjustments are recorded as a
component of accumulated other comprehensive income (loss) in stockholders'
equity.
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 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.
The fair value of the awards was estimated at the date of grant using the Black
Scholes option-pricing model.
The per share value of options granted in connection with the Company's stock
option plans has been estimated with the following weighted average assumptions:
2004 2003 2002
---------- --------- ----------
Expected Life of Options (Years) 8.1 8.0 8.0
Risk-Free Interest Rate 2.9% 4.9% 5.2%
Volatility 30.7% 34.3% 33.6%
Dividend Yield 1.0% 0.8% 0.9%
Weighted Average Fair Value $8.97 $11.09 $10.19
For purposes of the following pro forma disclosure, the estimated fair value of
the options is amortized to expense over the options' vesting periods. The
Company's pro forma information under SFAS No. 123 and SFAS No. 148 was as
follows:
2004 2003 2002
---------- ---------- ------------
Net Income as Reported $88,840 $87,275 $57,316
Stock-Based Compensation, Net
of Tax, Included in the
Determination of Net Income
as Reported:
Restricted stock plans 2,642 1,436 2,049
Director stock plan 42 230 207
Stock-Based Compensation
Costs, Net of Tax Determined
Under the Fair Value Method (7,145) (5,521) (5,182)
---------- ---------- ------------
Pro Forma Net Income $84,379 $83,420 $54,390
========== ========== ============
Reported Earnings Per Share
Diluted $1.41 $1.38 $0.91
Basic $1.44 $1.42 $0.94
Pro Forma Earnings Per Share
Diluted $1.34 $1.32 $0.86
Basic $1.37 $1.36 $0.90
Cash Equivalents: Cash equivalents consist primarily of highly liquid
investments with a maturity of three months or less and are stated at cost plus
accrued interest, which approximates market value.
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 is effective for fiscal years beginning after July 15,
2003. The new guidance is not expected to have a material impact on the
Company's consolidated financial statements.
In December 2003, the Financial Accounting Standards Board revised SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
revision retained the disclosure requirements contained in the original SFAS No.
132, but added additional disclosures about the types of plan assets, investment
strategy, measurement dates, plan obligations, cash flows, and components of net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The annual disclosure provisions of SFAS No. 132, as
revised, are effective for fiscal years ending after December 15, 2003, and are
included in the notes to the Company's April 30, 2004 Consolidated Financial
Statements.
In December 2003, the Financial Accounting Standards Board (FASB) revised
interpretation No. 46 Consolidation of Variable Interest Entities (FIN 46R), an
Interpretation of ARB No. 51. Public companies must apply the revised
interpretation immediately to entities created after January 31, 2003, no later
than the end of the first reporting period that ends after December 15, 2003 and
no later than the first reporting period that ends after March 15, 2004 for all
other entities. FIN 46R did not have a material impact on the Company's
financial position or results of operations.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative instruments and Hedging Activities." SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS 133. The
amendments set forth in SFAS 149 require that contracts with comparable
characteristics be accounted for similarly. SFAS 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. SFAS 149 did not have a material impact on the Company's
financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement requires that certain financial instruments be classified as
liabilities, instead of equity, in statements of financial position. SFAS 150
was effective August 1, 2003, and did not have an impact on the Company's
financial position or results of operations.
Income Per Share
A reconciliation of the shares used in the computation of net income per share
for the years ended April 30 follows:
In thousands 2004 2003 2002
- ----------------------------- ----------- ---------- -----------
Weighted Average Shares
Outstanding 62,009 61,675 60,937
Less: Unearned Deferred
Compensation Shares (238) (171) (247)
- ----------------------------- ----------- ---------- -----------
Shares Used for Basic
Income Per Share 61,771 61,504 60,690
Dilutive Effect of Stock
Options and Other Stock
Awards 1,455 1,582 2,404
- ----------------------------- ----------- ---------- -----------
Shares Used for Diluted
Income Per Share 63,226 63,086 63,094
- ----------------------------- ----------- ---------- -----------
For the years ended April 30, 2004, 2003, and 2002 options to purchase Class A
Common Stock of zero, .9 million, and zero, respectively, have been excluded
from the shares used for diluted income per share as their inclusion would have
been antidilutive.
Acquisitions
During fiscal year 2004, the Company invested $3.1 million in acquisitions
including payments to complete prior year acquisitions, the purchase of
publishing rights to higher education titles and publishing rights to several
Scientific, Technical, and Medical journals.
During fiscal year 2003, the Company acquired publishing assets aggregating
$10.5 million, which include teacher-education titles from Prentice Hall
Direct/Pearson Education, turf grass management and golf-course design titles
from Sleeping Bear Press/Ann Arbor Press, technology titles from Peer
Information Ltd. published under the Wrox Press Ltd. and Friends of Ed Ltd.
imprints, life-science textbooks from Fitzgerald Science Press, Inc., and the
Book of Yields from Chef Desk. The cost of these investments were principally
allocated to acquired publishing rights and noncompete agreements that are being
amortized on a straight-line basis over estimated average useful lives ranging
from 5 to 20 years.
In September 2001, the Company acquired 100% of the outstanding shares of Hungry
Minds, Inc. (Hungry Minds), for a total purchase price of approximately $184.1
million, consisting of approximately $90.2 million in cash for the common stock
of Hungry Minds, $91.7 million in cash to enable Hungry Minds to repay its
outstanding debt, and fees and expenses of approximately $2 million. Hungry
Minds is a leading publisher with a collection of respected brands including the
For Dummies, Unofficial Guide, the technological Bible and Visual series,
Frommer's travel guides, CliffsNotes, Webster's New World dictionaries, Betty
Crocker and Weight Watchers cookbooks, and other market-leading brands. Through
the Hungry Minds acquisition, the Company substantially increased its strong
collection of content, thereby enhancing its competitive position in the P/T
segment. The Hungry Minds brands are well known in the United States and abroad.
The results of operations of Hungry Minds have been included in the Company's
consolidated financial statements since the date of acquisition. The cost of the
acquisition was allocated on the estimated fair values of the assets acquired
and the liabilities assumed.
During fiscal year 2003, the Company finalized the purchase accounting for the
Hungry Minds acquisition, resulting in no material change to the Company's
financial position. The following table summarizes the final allocation for the
purchase price for the Hungry Minds assets acquired and liabilities assumed at
the date of acquisition.
Dollars in thousands
- --------------------
Current Assets $ 84,163
Product Development Assets 10,661
Property and Equipment 3,839
Goodwill 90,603
Other Intangible Assets 58,600
Deferred Income Tax Benefit 9,282
------------
Total assets acquired 257,148
------------
Current Liabilities (55,776)
Long-Term Liabilities (17,239)
------------
Total liabilities assumed (73,015)
------------
Net assets acquired $184,133
------------
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.
The final intangible assets recorded for all of the above fiscal year 2002
acquisitions, including Hungry Minds, were as follows:
Tax-
Amount Deductible
Dollars in thousands Recorded Amount
- -------------------------------------- ------------ ------------
Goodwill $104,962 $ 977
Other Intangible Assets Not
Subject to Amortization
Branded trademarks $ 57,900 $ 48,592
Acquired publication rights 11,498 -
------------ ------------
Total $ 69,398 $ 48,592
------------ ------------
Other Intangible Assets Subject
to Amortization
Acquired publication rights $ 12,746 $ 9,482
Noncompete agreements 150 150
------------ ------------
Total $ 12,896 $ 9,632
------------ ------------
The weighted average amortization period for acquired publication rights subject
to amortization was 27 years and 5 years for noncompete agreements. The
following unaudited pro forma financial information presents the results of
operations of the Company as if the above acquisitions had been consummated as
of May 1, 2000. The unaudited pro forma financial information is not necessarily
indicative of the actual results that would have been achieved had the
acquisition actually been consummated as of May 1, 2000, nor is it necessarily
indicative of the future results of operations.
Dollars in thousands
except per share data 2002
- --------------------------------------------------
Revenue $818,038
Net Income $36,593
Income Per Diluted Share $0.58
- ---------------------------------------------------
During fiscal year 2002, the Company also acquired publishing assets consisting
of 47 higher education titles from Thomson Learning for approximately $16.1
million in cash. The titles are in such publishing areas as business, earth and
biological sciences, foreign languages, mathematics, nutrition, and psychology.
The excess of cost over the fair value of the tangible assets acquired amounted
to approximately $13.5 million, relating to acquired publishing rights that are
being amortized on a straight-line basis over 20 years.
All acquisitions have been accounted for by the purchase method, and the
accompanying financial statements include their results of operations since
their respective dates of acquisition.
Headquarters Relocation
In the fourth quarter of fiscal year 2002, the Company finalized its commitment
to relocate the Company's headquarters to Hoboken, N.J. The relocation was
completed in the first quarter of fiscal year 2003. The first quarter of fiscal
year 2003 and the fourth quarter of fiscal year 2002 include charges for costs
associated with the relocation of approximately $2.5 million, or $1.5 million
after tax equal to $0.02 per diluted share; and $12.3 million, or $7.7 million
after tax equal to $0.12 per diluted share, for the respective periods. The
costs include moving costs, duplicate rent payments, rent payments on the
vacated facility, and the accelerated depreciation of leasehold improvements and
certain furniture, fixtures, and equipment based on revised estimates of useful
lives.
Inventories
Inventories at April 30 were as follows:
Dollars in thousands 2004 2003
- --------------------------- ----------------- ----------------
Finished Goods $74,310 $76,452
Work-in-Process 7,582 5,643
Paper, Cloth, and Other 4,397 4,798
- --------------------------- ----------------- ----------------
86,289 86,893
LIFO Reserve (2,500) (3,556)
- --------------------------- ----------------- ----------------
Total $83,789 $83,337
- --------------------------- ----------------- ----------------
Product Development Assets
Product development assets consisted of the following at April 30:
Dollars in thousands 2004 2003
- ---------------------------------- ------------ -------------
Composition Costs $32,379 $31,959
Royalty Advances 28,376 28,883
- ---------------------------------- ------------ -------------
Total $60,755 $60,842
- ---------------------------------- ------------ -------------
Composition costs are net of accumulated amortization of $76,248 in 2004 and
$67,683 in 2003.
Property and Equipment
Property and equipment consisted of the following at April 30:
Dollars in thousands 2004 2003
- -------------------------------- -------------- ---------------
Land and Land Improvements $ 5,027 $ 3,539
Buildings and Leasehold
Improvements 62,188 58,367
Furniture and Fixtures 49,506 44,344
Computer Equipment and
Capitalized Software 122,581 99,011
- -------------------------------- -------------- ---------------
239,302 205,261
Accumulated Depreciation (121,997) (90,391)
- -------------------------------- -------------- ---------------
Total $117,305 $114,870
- -------------------------------- -------------- ---------------
The net book value of capitalized software costs was $30.0 million and $24.8
million as of April 30, 2004 and 2003, respectively. The depreciation expense
recognized in 2004, 2003, and 2002 for capitalized software costs was
approximately $10.8 million, $6.0 million, and $5.9 million, respectively.
Goodwill and Other Intangible Assets
On May 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," which 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 its initial evaluation and assessment of its
goodwill and other intangible assets in accordance with SFAS No. 142 during the
first quarter of fiscal year 2003. No impairment charge was required. The
Company reclassified certain acquired publication rights to indefinite life
intangibles in connection with the implementation of SFAS No. 142.
The following table represents net income and earnings per share adjusted for
the non-amortization provision of SFAS 142:
Year Ended April 30,
2004 2003 2002
------------ ---------- ----------
Net Income, as Reported $88,840 $87,275 $57,316
Add Back: Amortization
Expense, Net of Tax
Indefinite lived
intangibles - - 4,001
Goodwill - - 3,844
------------ ---------- ----------
Adjusted Net Income $88,840 $87,275 $65,161
============ ========== ==========
Income Per Diluted Share:
As reported $1.41 $1.38 $0.91
Adjusted $1.41 $1.38 $1.03
Income Per Basic Share:
As reported $1.44 $1.42 $0.94
Adjusted $1.44 $1.42 $1.07
The following table summarizes the activity in goodwill by segment:
Cumulative
As of Acquisitions Translation As of
(Dollars in April and and Other April 30,
thousands) 30, 2003 Dispositions Adjustments 2004
---------- ------------ ------------ ------------
P/T $147,256 - - $147,256
STM 23,193 - - 23,193
European 19,830 730 1,711 22,271
Other 1,907 - 266 2,173
---------- ------------ ------------ ------------
Total $192,186 730 1,977 $ 194,893
========== ============ ============ ============
The following table summarizes intangibles subject to amortization as of April
30:
(Dollars in thousands) 2004 2003
-------------- ------------
Acquired Publication Rights $155,054 $150,708
Accumulated Amortization (53,505) (43,918)
-------------- ------------
Net Acquired Publication Rights $101,549 $106,790
Covenants Not to Compete $890 $900
Accumulated Amortization (483) (303)
-------------- ------------
Net Covenants Not to Compete $407 $597
-------------- ------------
Total $101,956 $107,387
============== ============
Based on the current amount of intangible assets subject to amortization, the
estimated amortization expense for each of the succeeding 5 fiscal years are as
follows: 2005 - $9.9 million; 2006 - $9.5 million; 2007 - $9.3 million; 2008 -
$9.1 million; and 2009 - $9.0 million.
The following table summarizes other intangibles not subject to amortization as
of April 30:
(Dollars in thousands) 2004 2003
------------- --------------
Acquired Publication Rights $116,584 $115,585
Branded Trademarks 57,900 57,900
------------- --------------
Total $174,484 $173,485
============= ==============
Other Accrued Liabilities
Other accrued liabilities as of April 30 consisted of the following:
(Dollars in thousands) 2004 2003
--------------- --------------
Accrued Compensation $42,053 $31,201
Pension Liability 4,563 8,048
Rent 2,313 2,505
Employee Benefits 3,471 3,171
Other 33,344 32,699
--------------- --------------
Total $85,744 $77,624
=============== ==============
Income Taxes
The provision for income taxes at April 30, was as follows:
Dollars in thousands 2004 2003 2002
- --------------------------- ---------- ---------- -----------
Current Provision(Benefit)
US - federal (1,198) $4,946 $14,984
International 9,425 8,186 7,045
State and local 1,358 928 1,322
- --------------------------- ---------- ---------- -----------
Total Current Provision 9,585 14,060 23,351
- --------------------------- ---------- ---------- -----------
Deferred Provision(Benefit)
US - federal 21,529 16,923 (2,436)
International 2,600 (8,159) 1,983
State and local 2,556 2,460 904
- --------------------------- ---------- ---------- -----------
Total Deferred Provision 26,685 11,224 451
- --------------------------- ---------- ---------- -----------
Total Provision $ 36,270 $ 25,284 $ 23,802
- --------------------------- ---------- ---------- -----------
Included in the Company's consolidated statements of cash flows as cash provided
by operating activities under the changes in other assets and liabilities
caption are tax benefits related to the exercise of stock options and restricted
stock held by employees amounting to $7.9 million, $3.0 million, and $8.0
million for fiscal years 2004, 2003, and 2002, respectively, which serve to
reduce current income taxes payable.
International and United States pretax income was as follows (in thousands):
2004 2003 2002
------------- ------------ ------------
International $41,853 $37,015 $29,707
United States 83,257 75,544 51,411
------------- ------------ ------------
Total $125,110 $112,559 $81,118
------------- ------------ ------------
The Company's effective income tax rate as a percent of pretax income differed
from the U.S. federal statutory rate as shown below:
2004 2003 2002
- ------------------------------------ -------- -------- ----------
U.S. Federal Statutory Rate 35.0% 35.0% 35.0%
State and Local Income Taxes
Net of Federal Income Tax Benefit 2.0 2.0 1.7
Tax Benefit Derived from FSC/EIE
Income (1.6) (2.1) (3.0)
Foreign Source Earnings Taxed at
Other Than U.S. Statutory Rate (2.9) (.8) (4.9)
Foreign Reorganization - (10.7) -
Amortization of Intangibles - - 2.0
Tax Benefit (2.4) - -
Other - Net (1.1) (.9) (1.5)
- ------------------------------------ -------- -------- ----------
Effective Income Tax Rate 29.0% 22.5% 29.3%
- ------------------------------------ -------- -------- ----------
In fiscal year 2004 the Company reported a tax benefit related to the favorable
resolution of certain Federal, State and foreign tax matters.
During the second quarter of fiscal year 2003 the Company merged several of its
European subsidiaries into a new entity, which enabled the Company to increase
the tax-deductible net asset basis of the merged subsidiaries to fair market
value creating a tax asset greater than the related book value. The $12 million
benefit attributable to the increase tax basis reduced the Company's fiscal year
2003 effective tax rate by 10.7%. The $12 million benefit includes the release
of $7.8 million of valuation allowance recorded in prior years.
Deferred taxes result from temporary differences in the recognition of revenue
and expense for tax and financial reporting purposes. The significant components
of deferred tax assets and liabilities at April 30 were as follows:
2004 2003
------------------- ------------------
Dollars in thousands Current Long-Term Current Long -Term
- ------------------------- -------- ---------- ------- ----------
Reserve for Sales Returns
and Doubtful Accounts $17,617 $438 $23,969 $404
Inventory (5,358) - 2,708 -
Accrued Expenses 133 4,938 637 5,321
Capitalized Costs - 5,657 - 5,623
Retirement and Post-
employment Benefits - 12,881 - 15,627
Depreciation and
Amortization - (25,232) - (10,035)
Long-Term Liabilities - 7,403 - 1,649
- ------------------------- -------- ---------- ------- ----------
Net Deferred Tax Assets $12,392 $6,085 $27,314 $18,589
- ------------------------- -------- ---------- ------- ----------
In general, the Company plans to continue to invest the undistributed earnings
of its international subsidiaries in those businesses, and therefore no
provision is made for taxes that would be payable if such earnings were
distributed. At April 30, 2004, the undistributed earnings of international
subsidiaries approximated $90.9 million and, if remitted currently, would result
in additional taxes approximating $1.2 million.
Notes Payable and Debt
Outstanding term loans consisted of $200 million due September 2006 and $35
million due and paid October 2003.
The weighted average interest rates on the term loans during fiscal years 2004
and 2003 were 1.87% and 2.35%, respectively. As of April 30, 2004 and 2003, the
weighted average rates for the term loans were 2.00% and 2.11%, respectively.
To finance the Hungry Minds acquisition, as well as to provide funds for general
working capital and other needs, in fiscal year 2002, the Company obtained an
additional $300 million bank credit facility with 13 banks, consisting of a $200
million five-year term loan facility to be repaid in September 2006 and a $100
million revolving credit facility. The Company has the option of borrowing at
the following floating interest rates: (i) at a rate based on the London
Interbank Offered Rate (LIBOR) plus an applicable margin ranging from .625% to
1.375% depending on the coverage ratio of debt to EBITDA; or (ii) at the higher
of (a) the Federal Funds Rate plus .5% or (b) UBS's prime rate, plus an
applicable margin ranging from 0% to .375% depending on the coverage ratio of
debt to EBITDA. In addition, the Company pays a commitment fee ranging from
..125% to .225% on the unused portion of the facility, depending on the coverage
ratio of debt to EBITDA.
In the event of a change of control, as defined, the banks have the option to
terminate the agreements and require repayment of any amounts outstanding.
The credit agreements contain certain restrictive covenants related to minimum
net worth, funded debt levels, an interest coverage ratio, and restricted
payments, including a cumulative limitation for dividends paid and share
repurchases. Under the most restrictive covenant, approximately $214 million was
available for such restricted payments as of April 30, 2004.
The Company and its subsidiaries have other short-term lines of credit
aggregating $32 million at various interest rates. Information relating to all
short-term lines of credit follows:
Dollars in thousands 2004 2003 2002
- ---------------------------------- ---------- --------- --------
End of Year
Amount outstanding $ - $ - $ -
Weighted average interest - - -
rate
During the Year
Maximum amount $65,000 $95,000 $70,000
outstanding
Average amount outstanding $ 14,241 $ 29,500 $14,137
Weighted average interest rate 1.8% 2.1% 2.9%
- ---------------------------------- ---------- --------- --------
The Company's total available lines of credit as of April 30, 2004, were $132
million. Based on estimates of interest rates currently available to the Company
for loans with similar terms and maturities, the fair value of notes payable and
long-term debt approximates the carrying value.
Commitments and Contingencies
The following schedule shows the composition of rent expense for operating
leases:
Dollars in thousands 2004 2003 2002
- ------------------------------- ----------- ---------- -----------
Minimum Rental $ 23,218 $ 24,819 $ 24,463
Less: Sublease Rentals (1,428) (156) (303)
- ------------------------------- ----------- ---------- -----------
Total $ 21,790 $ 24,663 $ 24,160
- ------------------------------- ----------- ---------- -----------
Future minimum payments under operating leases aggregated $235.3 million at
April 30, 2004. Future annual minimum payments under these leases are $24.5
million, $23.7 million, $22.8 million, $22.2 million, and $21.7 million for
fiscal years 2005 through 2009, respectively.
The Company is involved in routine litigation in the ordinary course of its
business. In the opinion of management, the ultimate resolution of all pending
litigation will not have a material effect upon the financial condition or
results of operations of the Company.
Retirement Plans
The Company and its principal subsidiaries have contributory and noncontributory
retirement plans that cover substantially all employees. The plans generally
provide for employee retirement between the ages of 60 and 65, and benefits
based on length of service and final average compensation, as defined.
The Company has agreements with certain officers and senior management personnel
that provide for the payment of supplemental retirement benefits during each of
the 10 years after the termination of employment. Under certain circumstances,
including a change of control as defined, the payment of such amounts could be
accelerated on a present value basis.
The Company provides contributory life insurance and health care benefits,
subject to certain dollar limitations for substantially all of its retired U.S.
employees. The cost of such benefits is expensed over the years the employee
renders service and is not funded in advance. The accumulated post-retirement
benefit obligation as of April 30, 2004 and 2003 was $1.4 million and $1.1
million respectively. Expenses for these plans for all years were immaterial.
The Company has a defined contribution 401(k) savings plan. The Company
contribution is based on employee contributions and the level of Company match.
The expense for this plan amounted to approximately $2.9 million, $2.5 million,
and $1.9 million in 2004, 2003, and 2002, respectively.
The components of net pension expense for the defined benefit plans were as
follows:
Dollars in thousands 2004 2003 2002
- ---------------------------------- --------- --------- ---------
Service Cost $6,962 $6,519 $6,174
Interest Cost 9,651 9,350 8,044
Expected Return on Plan Assets (6,830) (6,889) (6,987)
Net Amortization of Prior
Service Cost 666 645 511
Net Amortization of Unrecognized
Transition Asset (25) (39) (213)
Recognized Net Actuarial Loss 2,177 885 363
- ---------------------------------- --------- --------- ---------
Net Pension Expense $12,601 $10,471 $7,892
- ---------------------------------- --------- --------- ---------
The weighted-average assumptions used to determine net pension expense for the
years ended April 30 were as follows:
2004 2003 2002
- ---------------------------------- --------- --------- ---------
Discount rate 6.3% 7.1% 7.1%
Rate of Compensation Increase 3.7% 5.8% 5.7%
Expected Return on Plan Assets 7.9% 7.9% 8.0%
In fiscal year 2003, certain international plans were amended to require
participants to make annual contributions to their plan. In fiscal year 2002,
the U.S. plan was amended to provide that final average compensation be based on
the highest three consecutive years ended December 31, 1997, or, if employed
after that date, the first three consecutive years after that date. Neither of
these amendments had a material impact on pension expense for both years. The
Company may, but is not required to, update from time to time the ending date
for the three-year period used to determine final average compensation. The net
pension expense included above for the international plans amounted to
approximately $6.3 million, $5.4 million, and $3.8 million for 2004, 2003, and
2002, respectively.
The following table sets forth the changes in and the status of the plans'
assets and benefit obligations. The unfunded plans relate primarily to a non-US
subsidiary, which is governed by local statutory requirements, and the domestic
supplemental retirement plans for certain officers and senior management
personnel.
Dollars in thousands 2004 2003
---------------------------------------------------- ------------------------------------ ------------------------------------
CHANGE IN PLAN ASSETS Funded Unfunded Funded Unfunded
------ -------- ------ --------
<c>
Fair Value of Plan Assets, Beginning of Year $ 78,608 $ - $ 82,540 $ -
Actual Return on Plan Assets 13,038 - (7,037) -
Employer Contributions 19,633 1,571 3,782 1,511
Participants' Contributions 472 - 220 -
Benefits Paid (4,984) (1,571) (4,057) (1,511)
Foreign Currency Rate Changes 4,130 - 3,160 -
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
Fair Value, End of Year $ 110,897 $ - $ 78,608 $ -
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
CHANGE IN BENEFIT OBLIGATION
Benefit Obligation, Beginning of Year $ (118,264) $ (31,832) $ (95,289) $ (28,009)
Service Cost (5,842) (1,120) (5,338) (1,181)
Interest Cost (7,689) (1,962) (7,280) (2,070)
Employees' Contributions (416) - (220) -
Actuarial Gain (Loss) (6,260) 16 (10,068) 326
Benefits Paid 4,984 1,571 4,057 1,511
Foreign Currency Rate Changes (6,422) (1,040) (4,126) (2,409)
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
Benefit Obligation, End of Year $ (139,909) $ (34,367) $ (118,264) $ (31,832)
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
Funded Status $ (29,012) $ (34,367) $ (39,656) $ (31,832)
Unrecognized Net Asset 210 6 (63) -
Unrecognized Prior Service Cost 4,419 404 4,805 505
Unrecognized Net Actuarial Loss 31,960 2,818 32,138 3,010
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
Prepaid (Accrued) Pension Cost $ 7,577 $ (31,139) $ (2,776) $ (28,317)
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION
Deferred Pension Asset $ 992 $ - $ 686 $ -
Accrued Pension Liability (21,669) (31,399) (34,221) (28,734)
Other Asset 3,891 119 4,333 239
Accumulated Other Comprehensive Income 24,363 141 26,426 178
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
Net Amount Recognized $ 7,577 $ (31,139) $ (2,776) $ (28,317)
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
WEIGHTED AVERAGE ASSUMPTIONS USED IN
DETERMINING ASSETS AND LIABILITIES
Discount Rate 6.1% 6.1% 6.3% 6.2%
Expected Return on Plan Assets 8.0% - 7.9% -
Rate of Compensation Increase 3.6% 3.7% 3.6% 3.9%
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
Accumulated Benefit Obligations $ (131,212) $ (30,668) $ (110,608) $ (28,008)
Increase/(Decrease) in Minimum Liability Included in
Accumulated Other Comprehensive Income (Above) $ (2,063) $ (37) $ 26,426 $ 178
---------------------------------------------------- ----------------- ------------------ ----------------- ------------------
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the retirement plans with accumulated benefit obligations in
excess of plan assets were $170.1 million, $158.8 million, and $106.4 million,
respectively, as of April 30, 2004, and $145.5 million, $136.2 million, $74.0
million, respectively, as of April 30, 2003.
The asset allocation for the domestic defined benefit pension plan as of the
measurement date, by asset category, is as follows:
Percentage of
Plan Assets
-------------------
Asset Category 2004 2003
- ---------------------------------- --------- ---------
Equity Securities 48% 47%
Debt Securities 47% 46%
Real Estate 5% 7%
- ---------------------------------- --------- ---------
Total 100% 100%
- ---------------------------------- --------- ---------
The investment goal for the defined benefit pension plan is to generate an
above-average return in a diversified portfolio of stocks, bonds, and real
estate. The plan's risk management practices provide guidance to the balanced
investment manager, including guidelines for asset concentration, credit rating
and liquidity. Asset allocation favors a balanced portfolio, with a target
allocation of approximately 50% equity securities, 45% fixed income securities,
and 5% real estate. Due to volatility in the market, the target allocation is
not always desirable and asset allocations will fluctuate between acceptable
ranges.
The expected long-term rate of return was estimated using market benchmarks for
equities, real estate, and bonds applied to the plan's target asset allocation.
Expected returns are estimated by asset class and represent the sum of expected
real rates of return plus anticipated inflation. The expected long-term rate is
then compared to actual historic investment performance of the plan assets and
evaluated through consultation with investment advisors.
Wiley does not anticipate making a contribution to its domestic defined benefit
pension plan in 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.
Equity Compensation Plans
All equity compensation plans have been approved by security holders. The number
of securities to be issued upon exercise of outstanding options, warrants, and
rights as of April 30, 2004, was 5,047,980 at a weighted average exercise price
of $20.12. The number of securities remaining available for future issuance
under equity compensation plans was 4,466,812, excluding securities reserved for
current outstanding options.
Under the Company's Long Term Incentive Plan, qualified employees are eligible
to receive awards that may include stock options, performance stock awards, and
restricted stock awards subject to an overall maximum of 8,000,000 shares and up
to a maximum per year of 600,000 shares of Class A stock to any one individual.
The exercise price of options granted under the plan may not be less than 100%
of the fair market value of the stock at the date of grant. Options are
exercisable, in part or in full, over a maximum period of 10 years from the date
of grant, and generally vest within five years from the date of the grant. Under
certain circumstances relating to a change of control, as defined, the right to
exercise options outstanding could be accelerated.
A summary of the activity and status of the Company's stock option plans was as
follows:
2004 2003 2002
---------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Outstanding at Beginning of Year 5,034,904 $16.98 4,599,704 $14.44 5,080,703 $11.21
Granted 928,834 $25.32 900,809 $24.90 656,143 $23.15
Exercised (881,013) $ 7.63 (427,356) $ 5.78 (1,131,142) $ 4.95
Canceled (34,745) $21.77 (38,253) $23.17 (6,000) $17.91
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Outstanding at End of Year 5,047,980 $20.12 5,034,904 $16.98 4,599,704 $14.44
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Exercisable at End of Year 2,104,909 $14.22 2,161,372 $10.08 2,021,876 $ 8.05
---------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
The following table summarizes information about stock options outstanding and
options exercisable at April 30, 2004:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted Weighted
Avergage Average Avergage
Number of Remaining Exercise Number of Exercise
Options Term Price Options Price
- ----------------------------------------------------------------
156,060 0.8 years $ 6.33 156,060 $ 6.33
1,233,346 3.5 years 11.62 1,233,346 11.62
172,279 5.5 years 16.60 165,529 16.57
1,091,774 6.3 years 22.10 369,974 20.63
2,394,521 8.0 years 24.74 180,000 23.57
- ----------------------------------------------------------------
5,047,980 6.2 years $ 20.12 2,104,909 $ 14.22
- ----------------------------------------------------------------
Under the terms of the Company's executive long-term incentive plans, upon the
achievement of certain three-year financial performance-based targets, awards
will be payable in restricted shares of the Company's Class A Common stock. The
restricted shares vest equally as to 50% on the first and second anniversary
date after the award is earned. Compensation expense is charged to earnings over
the respective three-year period.
The Company also grants restricted shares of the Company's Class A Common Stock
to key executive officers and others in connection with their employment. The
restricted shares generally vest one third at the end of the third, fourth, and
fifth years following the date of the grant. Under certain circumstances
relating to a change of control or termination, as defined, the restrictions
would lapse and shares would vest earlier. Compensation expense is charged to
earnings ratably over five years, or sooner if vesting is accelerated, from the
dates of grant. Restricted shares issued in connection with the above plans
amounted to 177,605, 84,376, and 12,000 shares at weighted average fair values
of $25.16, $26.08, and $23.92 per share in 2004, 2003, and 2002, respectively.
Under the terms of the Company's Director Stock Plan, (the "Plan") each member
of the Board of Directors who is not an employee of the Company is awarded
either (a) Class A Common Stock equal to 50% of the board member's annual cash
compensation, based on the stock price on the date of grant, or (b) stock
options equal to 150% of the annual cash compensation divided by the stock price
on the date of grant. Directors' stock options are 100% exercisable at date of
grant. In fiscal year 2004, 4,109 shares of common stock were issued under the
Plan. In fiscal years 2003 and 2002, 13,224 and 24,343 stock options were
granted under the plan at an exercise price of $21.44 and $19.54, respectively.
Directors may also elect to receive all or a portion of their cash compensation
in stock. No cash compensation was received in the form of shares for fiscal
years 2004 and 2003. Shares of common stock issued in lieu of cash in fiscal
year 2002 were 1,729.
Capital Stock and Changes in Capital Accounts
Each share of the Company's Class B Common Stock is convertible into one share
of Class A Common Stock. The holders of Class A stock are entitled to elect 30%
of the entire Board of Directors and the holders of Class B stock are entitled
to elect the remainder. On all other matters, each share of Class A stock is
entitled to one tenth of one vote and each share of Class B stock is entitled to
one vote.
Under the Company's current stock repurchase program, up to four million shares
of its Class A common stock may be purchased from time to time in the open
market and through privately negotiated transactions. During fiscal year 2004
the Company repurchased 937,150 shares at an average price of $27.90 per share
under the current and previous programs. As of April 30, 2004, the Company has
authorization from the Board of Directors of the Company to purchase up to 3.8
million additional shares.
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 advanced placement, undergraduate, and graduate
students, teachers 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, which is also used to evaluate performance. Segment
information is as follows:
Dollars in thousands 2004
- ------------------------- ----------------------------------------------------------------------------------------------------------
Eliminations
European Other & Corporate
U.S. Segments Segment Segments Items Total
----------------------------------------------------- --------- --------- ---------- ----------
Scientific,
Professional/ Technical, Higher Total
Trade and Medical Education U.S.
----------- ------------ ----------- -----------
Revenue
External Customers $306,042 $170,526 $128,067 $604,635 $220,756 $97,571 $ - $922,962
Intersegment Sales 34,210 7,574 24,794 66,578 17,680 1,415 (85,673) -
----------- ------------ ----------- ----------- --------- --------- ---------- ---------
Total Revenue $340,252 $178,100 $152,861 $671,213 $238,436 $98,986 $(85,673) $922,962
----------- ------------ ----------- ----------- --------- --------- ---------- ---------
Direct Contribution to
Profit $93,945 $86,310 $41,749 $222,004 $74,585 $22,218 - $318,807
----------- ------------ ----------- ----------- --------- --------- ----------
Shared Services and
Admin. Costs (a) ($189,428)
---------
Operating Income 129,379
Interest Expense - Net (4,269)
---------
Income Before Taxes $125,110
=========
Total Assets $395,550 $56,277 $113,614 $565,441 $237,574 $39,146 $172,421 $1,014,582
Expenditures for Other
Long-Lived Assets $26,822 $11,620 $11,150 $49,592 $15,642 $4,445 $22,039 $91,718
Depreciation and
Amortization $16,728 $4,276 $13,904 $34,908 $13,013 $3,037 $20,409 $71,367
- ------------------------- ----------- ------------ ----------- ---------- ----------- ---------- ----------- ---------
Dollars in thousands 2003
- ------------------------- ---------------------------------------------------------------------------------------------------------
Eliminations
European Other & Corporate
U.S. Segments Segment Segments Items Total
----------------------------------------------------- --------- --------- ---------- ---------
Scientific,
Professional/ Technical, Higher Total
Trade and Medical Education U.S.
----------- ------------ ----------- -----------
Revenue
External Customers $289,090 $160,017 $124,017 $573,124 $194,326 $86,521 $ - $853,971
Intersegment Sales 32,873 8,191 24,203 65,267 16,156 793 (82,216) -
----------- ---------- ----------- ---------- --------- --------- ---------- ---------
Total Revenue $321,963 $168,208 $148,220 $638,391 $210,482 $87,314 $(82,216) $853,971
----------- ---------- ----------- ---------- --------- --------- ---------- ---------
Direct Contribution
to Profit $87,354 $77,937 $39,938 $205,229 $69,191 $16,278 - $290,698
----------- ---------- ----------- ---------- --------- --------- ----------
Shared Services and
Admin. Costs (a) ($167,972)
Unusual Item (b) (2,465)
---------
Operating Income 120,261
Interest Expense - Net (7,702)
---------
Income Before Taxes $112,559
=========
Total Assets $391,075 $55,868 $117,165 $564,108 $228,013 $36,565 $143,554 $972,240
Expenditures for
Long-Lived Assets $35,218 $9,258 $13,812 $58,288 $26,150 $3,602 $37,516 $125,556
Depreciation and
Amortization $16,849 $4,130 $12,650 $33,629 $10,054 $2,403 $16,877 $62,963
- ------------------------- ----------- ------------ ----------- ---------- ----------- ---------- ----------- ---------
2002
Dollars in thousands
- ------------------------- ----------------------------------------------------------------------------------------------------------
Eliminations
European Other & Corporate
U.S. Segments Segment Segments Items Total
----------------------------------------------------- --------- --------- ---------- ---------
Scientific,
Professional/ Technical, Higher Total
Trade and Medical Education U.S.
----------- ------------ ----------- -----------
Revenue
External Customers $238,060 $157,503 $119,833 $515,396 $151,442 $67,558 $ - $734,396
Intersegment Sales 15,012 7,427 21,463 43,902 12,662 760 (57,324) -
------------ ----------- ----------- --------- ----------- ---------- ---------- ---------
Total Revenue $253,072 $164,930 $141,296 $559,298 $164,104 $68,318 $ (57,324) $734,396
------------ ----------- ----------- --------- ----------- ---------- ----------- --------
Direct Contribution
to Profit $63,210 $71,085 $44,272 $178,567 $56,664 $15,199 - $250,430
------------ ----------- ----------- --------- ----------- ---------- -----------
Shared Services and
Admin. Costs (a) ($150,355)
Unusual Items (b) (12,312)
----------
Operating Income 87,763
Interest Expense - Net (6,645)
----------
Income Before Taxes $81,118
==========
Total Assets $397,054 $55,787 $103,496 $556,337 $198,432 $30,334 $111,042 $896,145
Goodwill Acquired $90,656 - - $90,656 $11,646 $1,596 - $103,898
Expenditures for Other
Long-Lived Assets $122,090 $7,581 $25,458 $155,129 $34,196 $3,112 $17,740 $210,177
Depreciation and
Amortization $19,096 $5,955 $11,330 $36,381 $11,922 $2,051 $8,968 $59,322
(a) The following chart is a detail of Shared Services and Administrative Costs
(dollars in thousands):
Dollars in thousands 2004 2003 2002
---------------------------------------------------- ----------------- ---------------- -----------------
Distribution $47,174 $45,680 $37,627
Information Technology 51,918 42,427 39,750
Finance 29,900 27,919 23,691
Other Administration 60,436 51,946 49,287
----------------- ---------------- -----------------
Total $189,428 $167,972 $150,355
================= ================ =================
(b) Relocation related expenses
During fiscal year 2003, the Company centralized several Web development
activities, which were previously in the publishing operations. This
organizational change enables the Company to leverage these capabilities more
efficiently across all of its global businesses. The expenses for these
activities are now included in shared services and administrative costs, whereas
previously they were included in business segment results. Accordingly, these
expenses have been reclassified for the prior year periods in the above
statements to provide a more meaningful comparison.
Fiscal year 2002 direct contribution to profit for the U.S. STM segment includes
a charge to earnings of $5 million representing a write-off of two investments
in an environmental remediation portal and database and an entrepreneurial
informatics company. Intersegment sales are generally made at a fixed discount
from list price. Shared services costs are not allocated, as they support the
Company's worldwide operations. Corporate assets primarily consist of cash and
cash equivalents, deferred tax benefits, and certain property and equipment.
Export sales from the United States to unaffiliated international customers
amounted to approximately $68.8 million, $75.6 million, and $74.3 million in
fiscal years 2004, 2003, and 2002, respectively. The pretax income for
consolidated international operations was approximately $41.9 million, $37.0
million, and $29.7 million in 2004, 2003, and 2002, respectively.
Worldwide revenue for the Company's core businesses was as follows:
Dollars in thousands 2004 2003 2002
------------------ ------------------- ------------------
Professional/Trade $393,134 $369,115 $292,054
Scientific, Technical, and Medical 340,235 308,554 276,510
Higher Education 189,593 176,302 165,832
------------------ ------------------- ------------------
Total $922,962 $853,971 $734,396
================== =================== ==================
Revenue from external customers based on the location of the customer and
long-lived assets by geographic area was as follows:
Dollars in thousands Revenue Long-Lived Assets
------------------------------------------- ------------------------------------------
2004 2003 2002 2004 2003 2002
------------- ----------- ----------- ----------- ------------ ------------
United States $567,341 $524,394 $473,145 $461,039 $468,763 $446,103
United Kingdom 67,821 56,285 35,427 61,712 55,941 39,218
Germany 57,018 56,826 34,818 138,311 135,553 126,786
Australia 34,241 27,849 23,182 6,699 5,690 4,262
Canada 33,918 33,063 26,798 2,097 1,651 639
Other Countries 162,623 155,554 141,026 1,742 1,730 2,527
------------- ----------- ----------- ----------- ------------ ------------
Total $922,962 $853,971 $734,396 $671,600 $669,328 $619,535
============= =========== =========== =========== ============ ============
Schedule II
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 30, 2004, 2003, AND 2002
(Dollars in thousands)
Additions/(Deductions)
------------------------------
Balance at Charged to Deductions Balance at
Description Beginning Cost & From (3) From Reserves End of
of Period Expenses Acquisitions Period
- --------------------------------------------- ------------- -------------- --------------- ---------------- -------------
Year Ended April 30, 2004
Allowance for sales returns(1) $ 65,130 $ 63,752 $ - $ 65,130 $ 63,752
Allowance for doubtful accounts $ 9,546 $ 2,861 $ - $ 1,029(2) $ 11,378
Year Ended April 30, 2003
Allowance for sales returns(1) $ 67,816 $ 65,130 $ - $ 67,816 $ 65,130
Allowance for doubtful accounts $ 17,008 $ 1,590 $ (7,326) $ 1,726(2) $ 9,546
Year Ended April 30, 2002
Allowance for sales returns(1) $ 43,118 $ 67,816 $ 30,226 $ 73,344 $ 67,816
Allowance for doubtful accounts $ 9,684 $ 2,219 $ 7,026 $ 1,921(2) $ 17,008
- ---------------------------------------
(1) Allowance for sales returns represents anticipated returns net of inventory
and royalty costs.
(2) Accounts written off, less recoveries.
(3) Purchase accounting adjustment associated with the acquisition of Hungry
Minds
Item 9. Changes in and Disagreements With
---------------------------------
Accountants on Accounting and Financial Disclosure
--------------------------------------------------
None
Item 9A. Controls and Procedures
-----------------------
As of April 30, 2004, an evaluation was performed under the
supervision and with the participation of the Company's management,
including the CEO and CFO, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the CEO and
CFO, concluded that the Company's disclosure controls and procedures
were effective as of April 30, 2004. There have been no significant
changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to April 30,
2004.
The Company's Corporate Governance Principles, Committee Charters,
Business Conduct and Ethics Policy and the Code of Ethics for Senior
Financial Officers are published on our web site at www.wiley.com
under the "About Wiley--Investor Relations--Corporate Governance"
captions. Copies are also available free of charge to shareholders on
request to the Corporate Secretary, John Wiley & Sons, Inc., 111 River
Street, Hoboken, NJ 07030-5774.
PART III
Item 10. Directors and Executive Officers
The information regarding the Board of Directors on pages 6 to 12 of
the 2004 Proxy Statement is incorporated herein by reference.
Executive Officers
Set forth below as of April 30, 2004 are the names and ages of all
executive officers of the Company, the period during which they have
been officers, and the offices presently held by each of them.
Name and Age Officer Since Present Office
Peter Booth Wiley 2002 Chairman of the Board since September 2002 and a Director
61
William J. Pesce 1989 President and Chief Executive Officer and a Director since May 1, 1998
53 (previously Chief Operating Officer; Executive Vice President, Educational
and International Group)
Ellis E. Cousens 2001 Executive Vice President and Chief Financial and Operations Officer since
52 March 2001 (previously Senior Vice President, Chief Financial Officer of
Bookspan, a Bertelsmann AG joint venture, from March 2000; Vice President,
Finance and Strategic Planning, of Bertelsmann AG from March 1999; Vice
President, Chief Financial Officer of BOL.com, a subsidiary of Bertelsmann AG,
from August 1998)
Stephen A. Kippur 1986 Executive Vice President; and President, Professional and Trade Publishing,
57 since July 1998 (previously Executive Vice President and Group President,
Professional, Reference and Trade)
William Arlington 1990 Senior Vice President, Human Resources, since June 1996
55
Timothy B. King 1996 Senior Vice President, Planning and Development, since June 1996
64
Richard S. Rudick 1978 Senior Vice President, General Counsel, since June 1989 (retiring July 2004)
64
Gary M. Rinck 2004 Senior Vice President, General Counsel (previously Group General Counsel of
52 Pearson PLC, from 2000, Managing Partner of the London office of Morrison &
Foerster from 1995.)
Deborah E. Wiley 1982 Senior Vice President, Corporate Communications, since June 1996
58
Edward J. Melando 2002 Vice President, Corporate Controller, since April 2002 (previously Vice
48 President, Corporate Controller of Journal Register Company from August 2000;
Corporate Controller of Asarco Incorporated, from April 1999)
Each of the other officers listed above will serve until the next
organizational meeting of the Board of Directors of the Company and
until each of the respective successors is duly elected and qualified.
Deborah E. Wiley is the sister of Peter Booth Wiley. There is no other
family relationship among any of the aforementioned individuals.
Item 11. Executive Compensation
----------------------
The information on pages 13 to 19 of the 2004 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain
-----------------------------
Beneficial Owners and Management
--------------------------------
The information on pages 2, 3, 11 and 12 of the 2004 Proxy Statement
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
Item 14. Principal Accountant Fees and Services
--------------------------------------
The information regarding principal accountant fees and services on
pages 20 and 21 of the 2003 Proxy Statement is incorporated herein by
reference.
PART IV
Item 15. Exhibits, Financial Statement
-----------------------------
Schedules and Reports on Form 8-K
---------------------------------
(a) Financial Statements and Schedules
(1) List of Financial Statements filed. The financial
statements listed in the attached index are filed as
part of this Report.
(2) List of Financial Statement Schedules filed. The
financial statement schedules listed in the attached
index are filed as part of this Report.
(b) Reports on Form 8-K
Earnings Release on Fiscal year 2004 Results issued on Form 8-K
dated June 16, 2004.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of August 12, 2001, among
the Company, HMI Acquisition Corp. and Hungry Minds, Inc.
(incorporated by reference to the Company's Report on Form 8-K
dated as of August 12, 2001).
3.1 Restated Certificate of Incorporation (incorporated by reference
to the Company's Report on Form 10-K for the year ended April 30,
1992).
3.2 Certificate of Amendment of the Certificate of Incorporation
dated October 13, 1995 (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 1997).
3.3 Certificate of Amendment of the Certificate of Incorporation
dated as of September 1998 (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended
October 31, 1998).
3.4 Certificate of Amendment of the Certificate of Incorporation
dated as of September 1999 (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended
October 31, 1999).
3.5 By-Laws as Amended and Restated dated as of September 1998
(incorporated by reference to the Company's Report on Form 10-Q
for the quarterly period ended October 31, 1998).
10.1 $300,000,000 Credit Agreement dated as of September 21, 2001,
among the Company and the Lenders From Time to Time Parties
Hereto, UBS AG Stamford Branch, as Administrative Agent and UBS
Warburg LLC, as Arranger (incorporated by reference to the
Company's Report on Schedule TO/A Amendment No. 5 dated September
21, 2001).
10.2 Credit agreement dated as of November 15, 1996 among the Company,
the Banks from time to time parties hereto, and Morgan Guaranty
Trust Company of New York, as Agent (incorporated by reference to
the Company's report on Form 10-Q for the quarterly period ended
October 31, 1996).
10.3 Agreement of Lease dated as of August 4, 2000, between Block A
South Waterfront Development L.L.C., as Landlord, and the
Company, as Tenant (incorporated by reference to the Company's
Report on Form 10-Q for the quarterly period ended July 31,
2000).
10.4 Agreement of Lease dated as of May 16, 1985 between Fisher 40th &
3rd Company and Hawaiian Realty, Inc., Landlord, and the Company,
Tenant (incorporated by reference to the Company's Report on Form
10-K for the year ended April 30, 1985).
10.5 Long Term Incentive Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 6, 1999).
10.6 Executive Annual Incentive Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 6, 1999).
10.7 1991 Key Employee Stock Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 8, 1991).
10.8 Amendment to 1991 Key Employee Stock plan dated as of September
19, 1996, (Incorporated by reference to the Company's Definitive
Proxy Statement dated August 9, 1996).
10.9 Senior executive employment Agreement to Arbitrate dated as of
April 29, 2003.
10.10 Senior executive Non-competition and Non-disclosure Agreement
dated as of April 29, 2003
10.11 1990 Director Stock Plan as Amended and Restated as of June 22,
2001 (incorporated By reference to the Company's Definitive Proxy
Statement dated August 8, 2001)
10.12 1989 Supplemental Executive Retirement Plan (incorporated by
reference to the Company's Report on Form 10-K for the year ended
April 30, 1989).
10.13 Form of the Fiscal Year 2002 Qualified Executive Long Term
Incentive Plan (Incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2002).
10.14 Form of the Fiscal Year 2002 Qualified Executive Annual
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2002).
10.15 Form of the Fiscal Year 2002 Executive Annual Strategic
Milestones Incentive Plan (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 2002).
10.16 Form of the Fiscal Year 2001 Qualified Executive Long Term
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2001).
10.17 Form of the Fiscal Year 2001 Qualified Executive Annual
Incentive Plan (incorporated by reference to the Company's Report
on Form 10-K for the year ended April 30, 2001).
10.18 Form of the Fiscal Year 2001 Executive Annual Strategic
Milestones Incentive Plan (incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 2001).
10.19 Form of the Fiscal Year 2003 Qualified Executive Long Term
Incentive Plan. (filed as a exhibit to the 10K report)
10.20 Form of the Fiscal Year 2003 Qualified Executive Annual Incentive
Plan. (filed as a exhibit to the 10K report)
10.21 Form of the fiscal year 2003 Executive Annual Strategic
Milestones Incentive Plan. (filed as a exhibit to the 10K report)
10.22 Senior executive Employment Agreement dated as of March 1, 2003,
between William J. Pesce and the Company
10.23 Senior executive Employment Agreement dated as of March 1, 2003,
between Stephen A. Kippur and the Company
10.24 Senior executive Employment Agreement dated as of March 1, 2003,
between Ellis E. Cousens and the Company
10.25 Senior executive Employment Agreement letter dated as of March
1, 2003, between Richard S. Rudick and the Company
10.26 Senior executive Employment Agreement letter dated as of March
1, 2003, between Timothy B. King and the Company
10.27 Senior executive Employment Agreement letter dated as of March
15, 2004, between Gary M. Rinck and the Company (filed as an
exhibit to this form 10K report)
22 List of Subsidiaries of the Company.
23 Consent of Independent Registered Public Accounting Firm
(included in this report as listed in the attached index).
99 Certificates Pursuant to 18 S.C. Section 1350, as adopted
pursuant to Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
JOHN WILEY & SONS, INC.
-----------------------------------------------
(Company)
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 and Operations Officer
By: /s/ Edward J. Melando
---------------------------------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: June 17, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons constituting directors of the
Company on June 17, 2004.
/s/ Warren J. Baker /s/ William J. Pesce
---------------------------------- -----------------------------------
Warren J. Baker William J. Pesce
/s/ Larry Franklin /s/ William B. Plummer
---------------------------------- -----------------------------------
Larry Franklin William B. Plummer
/s/ Mathew S. Kissner /s/ William R. Sutherland
---------------------------------- -----------------------------------
Mathew S. Kissner William R. Sutherland
/s/ Henry A. McKinnell /s/ Bradford Wiley II
---------------------------------- -----------------------------------
Henry A. McKinnell Bradford Wiley II
/s/ John L. Marion, Jr. /s/ Peter Booth Wiley
---------------------------------- -----------------------------------
John L. Marion, Jr. Peter Booth Wiley
CERTIFICATIONS
I, William J. Pesce, certify that:
I have reviewed this annual report on Form 10-K of John Wiley & Sons, Inc.;
- Based on my knowledge, this annual 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 annual report; and
- Based on my knowledge, the financial statements, and other financial
information included in this annual 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
- 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-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures 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
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the end of the period covered by
this report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
- The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, 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 in the design or operation of
internal controls which would adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; 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; and
- The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
By /s/ William J. Pesce
---------------------------------
William J. Pesce
President and Chief Executive Officer
Dated: June 17, 2004
CERTIFICATIONS
I, Ellis E. Cousens, certify that:
I have reviewed this annual report on Form 10-K of John Wiley & Sons, Inc.;
- Based on my knowledge, this annual 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 annual report; and
- Based on my knowledge, the financial statements, and other financial
information included in this annual 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
- 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-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures 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
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the end of the period covered by
this report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
- The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, 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 in the design or operation of
internal controls which would adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; 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; and
- The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
By /s/ Ellis E. Cousens
---------------------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
Dated: June 17, 2004
Exhibit 22
SUBSIDIARIES OF JOHN WILEY & SONS, INC.(1)
------------------------------------------
Jurisdiction
in Which
Incorporated
------------
John Wiley & Sons International Rights, Inc. Delaware
JWS HQ, LLC New Jersey
JWS DCM, LLC New Jersey
Wiley-Liss, Inc. Delaware
Wiley Publishing Services, Inc. Delaware
Wiley Periodicals, Inc. Delaware
Wiley Subscription Services, Inc. Delaware
John Wiley & Sons (Asia) Pte Ltd. Singapore
John Wiley & Sons Australia, Ltd Australia
John Wiley & Sons Canada Limited Canada
John Wiley & Sons (HK) Limited Hong Kong
Wiley Europe Limited England
Wiley Heyden Ltd England
Wiley Europe (S.A.R.L.) France
Wiley Distribution Services Limited England
John Wiley & Sons Ltd. England
InPharm-Internet Services Limited England
Wiley HMI Holdings, Inc. Delaware
Wiley Europe Investment Holdings Ltd England
A&M Publishing Ltd England
HMI Investment, Inc. Delaware
Wiley Publishing, Inc. Delaware
Wiley Dreamtech India Private Limited (65%) India
John Wiley & Sons GmbH Germany
Wiley InterScience GmbH Germany
Verlag Chemie GmbH Germany
Wiley-VCH Verlag GmbH & Co. KGaA Germany
Wiley-GIT Publishers GmbH Germany
GIT Verlag GmbH & Co. KG Germany
Wiley Fachverlag GmbH Germany
Wilhelm Ernst & Sohn Verlag fuer Architectur
und technische Wissenschaften GmbH & Co. KG Germany
Verlag Helvetica Chimica Acta AG Switzerland
Wiley-VCH Verlag Schweiz AG Switzerland
Physik Verlag GmbH (52%) Germany
WWL, Inc. Delaware
Wiley-Japan Y.K. Japan
- --------------------------------------------------------
(1) The names of other subsidiaries that would not constitute a significant
subsidiary in the aggregate have been omitted. All subsidiaries are wholly
owned unless indicated parenthetically.
Exhibit 99.1
CERTIFICATION PURSUANT TO
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of John Wiley & Sons, Inc. (the "Company"),
on Form 10-K for the period ending April 30, 2004, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, William J. Pesce,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that based on my knowledge:
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
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: June 17, 2004
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 .S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of John Wiley & Sons, Inc. (the "Company"),
on Form 10-K for the period ending April 30, 2004, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Ellis E. Cousens,
Executive Vice President and Chief Financial & Operations Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:
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
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: June 17, 2004
Exhibit 10.27
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 15th
day of March, 2004, by and between John Wiley & Sons, Inc., a New York
corporation, with offices at 111 River Street, Hoboken, New Jersey 07030
(hereinafter referred to as the "Company"), and Gary M. Rinck presently residing
at 56 Raymond Road, Wimbledon, SW19 4AL, England (hereinafter referred to as
"Executive").
WHEREAS, the Company desires to employ Executive as Senior
Vice President and General Counsel , and Executive desires to serve the Company
in such capacity,
NOW THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Employment. The Company agrees to employ Executive and
Executive agrees to be employed by the Company for the Period of Employment (as
defined below) and upon the terms and conditions provided in this Agreement.
2. Position and Responsibilities.
(a) During the Period of Employment, Executive will
serve as Senior Vice President
and General Counsel of the Company, and subject to the direction of the
Company's Chief Executive Officer ("CEO") will perform such duties and exercise
such supervision with regard to the business of the Company as are associated
with such position, as well as such other duties as may be prescribed from time
to time by the CEO. Executive shall be subject to and shall observe and carry
out such reasonable rules, regulations, policies, directions and restrictions
consistent with the duties to be performed by Executive hereunder as the Company
shall from time to time establish.
(b) Executive will, during the Period of Employment,
devote his full business time
and attention to the faithful and competent performance of services for the
Company. Executive hereby represents and warrants to the Company that Executive
has no conflicting obligations under any existing employment or service
agreement and that Executive's performance of the services required of Executive
hereunder will not conflict with any other existing obligations or commitments.
Nothing in this Agreement shall preclude Executive from engaging, consistent
with Executive's duties and responsibilities hereunder, in charitable and
community affairs.
(c) Executive shall perform the duties contemplated
hereunder at the principal
executive office of the Company and at such other locations as may be reasonably
necessary to the performance of such duties, and Executive shall do such
traveling as may be reasonably required of Executive in the performance of such
duties.
3. Period of Employment. The period of Executive's employment
under this Agreement (the "Period of Employment") will begin on March 15, 2004
(the "Commencement Date"), and end on the second anniversary thereof, subject to
earlier termination and further renewal as provided in this Agreement.
Executive's Period of Employment shall automatically renew for subsequent
two-year periods, subject to the terms of this Agreement, unless either party
gives written notice 90 days or more prior to the expiration of the then
existing Period of Employment of Executive's or the Company's decision not to
renew. A decision by the Company not to renew other than as a result of
Executive's death or Disability (as defined below), and other than in
circumstances which would give rise to a Termination for Cause (as defined
below) shall be treated as a Without Cause Termination (as defined below), and
so governed by the provisions of Section 9 hereof.
4. Compensation and Benefits. For all services rendered by
Executive pursuant to this Agreement during the Period of Employment, including
services as an executive, officer, director or committee member of the Company
or any of its subsidiaries or affiliates, Executive will be compensated as
follows:
(a) Base Salary. The Company will pay Executive a
fixed base salary ("Base Salary")
of not less than $375,000.00. Executive will be eligible to receive annual
increases as the Company's Board of Directors (the "Board") deems appropriate,
in accordance with the Company's customary procedures regarding the salaries of
senior officers. Base Salary will be payable according to the customary payroll
practices of the Company but in no event less frequently than once each month.
(b) Executive Compensation Plans. Executive shall be
eligible to participate in all
of the Company's executive compensation plans in effect on the date hereof in
which any senior executive of the Company is eligible to participate, including
but not limited to the Company's Executive Annual Incentive Plan, as amended or
restated from time to time (the "EAIP"), the Company's Long Term Incentive Plan,
as amended or restated from time to time (the "LTIP"), or equivalents, for so
long as such plans remain in effect. Nothing in this Agreement shall require the
Company or its affiliates to establish, maintain or continue any executive
compensation plan or restrict the right of the Company or any of its affiliates
to amend, modify or terminate any such plan.
(c) FY05EAIP. The Company will recommend to the
Compensation Committee of the
Board (the "Committee") that Executive participate in the EAIP with an initial
targeted bonus of 75% of Base Salary with respect to the fiscal year of the
Company ending April 30, 2005, subject to the terms and conditions of the EAIP
and those to be determined by the Committee.
(d) LTIP. The Committee has approved, and at the
appropriate times will take
action on (x) a grant to the Executive, on the Commencement Date, pursuant to
the LTIP of 16,000 shares of Common Stock, as restricted stock vesting 50% at
the end of two years of employment, and 50% at the end of three years of
employment; and (y) subject to continued employment, an additional grant of
8,000 shares of restricted stock in March of 2005, vesting one-third each in
March of 2006, 2007, and 2008. The foregoing are subject to the terms and
conditions of the LTIP and those to be set forth in the Company's Restricted
Stock grant letter to Executive. In addition, the Company will recommend to the
Committee that Executive be granted pursuant to the FY05 LTIP, with respect to
the three-year cycle of the Company ending April 30, 2007, (x) a non-qualified
stock option to purchase an aggregate of 25,000 shares Common Stock, subject to
the terms and conditions of the LTIP and those to be determined by the Committee
and (y) restricted performance shares, with an initial target of 10,000 shares
of Common Stock, subject to the terms and conditions of the LTIP and those to be
determined by the Committee.
(e) SERP. The Company will recommend to the Committee
that Executive
participate in the Company's 1989 Supplemental Executive Retirement Plan, as
amended or restated from time to time (the "SERP"), and Executive's "Applicable
Percentage" (as defined in the SERP) shall be equal to 50% subject to the
approval of the Committee.
(f) Participation in Benefit Plans. The Company shall
afford Executive with an
opportunity to participate in any health care, dental, disability insurance,
life insurance, retirement, savings and any other employee benefits plans,
policies or arrangements which the Company maintains for its employees in
accordance with the written terms of such plans, policies or arrangements, on
the same basis as the Company's other Senior Executives. Nothing in this
Agreement shall require the Company or its affiliates to establish, maintain or
continue any benefit plans, policies or arrangements or restrict the right of
the Company or any of its affiliates to amend, modify or terminate any such
benefit plan, policy or arrangement.
(g) Vacations, Holidays or Temporary Leave. Executive
shall be entitled to take four
weeks of vacation per calendar year, or such greater amount, if any, as provided
in the policies of the Company then applicable to Executive, without loss or
diminution of compensation. Such vacation shall be taken at such time or times
consistent with the needs of the Company's business. Executive shall further be
entitled to the number of paid holidays, and leaves for illness or temporary
disability in accordance with the Company's policies as such policies may be
amended from time to time or terminated in the Company's sole discretion.
5. Other Offices. Executive agrees to serve without additional
compensation, if elected or appointed thereto, as an officer or director of any
of the Company's subsidiaries or affiliates or as any other officer of the
Company.
6. Business Expenses. The Company will reimburse Executive for
all reasonable travel and other expenses incurred by Executive in connection
with the performance of Executive's duties and obligations under this Agreement.
Executive will comply with such limitations and reporting requirements with
respect to expenses as may be established by Company from time to time and will
promptly provide all appropriate and requested documentation in connection with
such expenses.
7. Disability. If Executive becomes Disabled (as defined
below) during the Period of Employment, the Company may, in its discretion, hire
a permanent replacement to fill the position previously held and to perform the
duties previously performed by Executive, provided, however, the Company shall
continue Executive's employment with the Company on an inactive basis to the
extent necessary to continue to maintain Executive's eligibility for benefits
available under the Company's Group Long-Term Disability Insurance Plan or under
any generally similar plan then in effect (the "LTD Plan") and such other
employee benefit plans that are generally available to employees receiving
benefits under the LTD Plan, in accordance with the terms of such plan(s) as
they may be amended from time to time. For purposes of this Agreement,
"Disabled" or "Disability" means Executive's inability, because of mental or
physical illness or incapacity, whether total or partial, to perform one or more
of the primary duties of Executive's employment, with or without reasonable
accommodation, for a length of time that the Company determines is sufficient to
satisfy such obligations as it may have under the Family and Medical Leave Act
("FMLA") and such "reasonable accommodation" obligations it may have under
federal, state or local disability laws. Upon Executive's entitlement to receive
benefits available under the LTD Plan and such other benefits generally
available to employees receiving benefits under the LTD Plan, the Company's
obligation to provide Executive compensation and other benefits pursuant to
Section 4 hereof shall cease. In the event that Executive ceases to be Disabled
and Executive is able to return to work and Executive's former position is not
open, the Company will endeavor to find, and will work interactively with
Executive to find, a position of comparable responsibility, compensation and
benefits and to reinstate Executive to such position, if such a position is
available at the conclusion of Executive's disability leave of absence. Prior to
restoration of Executive to active employment with the Company, Executive shall
cooperate in obtaining all fitness for duty certifications from Executive's
treating physician(s) and such other physicians as the Company may request in
accordance with the FMLA and federal, state and local disability and worker's
compensation laws. Within fifteen (15) days of receipt of all medical
certification(s) requested by the Company, if the Company does not restore
Executive to active employment with the Company, then at that time Executive's
employment with the Company will be deemed to have terminated. Under the policy
currently in effect for employees of the Company, such termination will be
treated as a Without Cause Termination in accordance with Paragraph 9(a) below,
provided the Executive has not then attained the age of 65. Nothing in this
Agreement shall require the Company to continue such policy, and such
termination shall be treated in accordance with the policy applicable at the
time the Executive becomes disabled.
8. Death. In the event of the death of Executive during the
Period of Employment, the Period of Employment will end and the Company's
obligation to make payments under this Agreement will cease as of the date of
death, except that the Company will pay Executive's beneficiary designated for
purposes of Executive's life insurance provided by the Company or absent such
designation to Executive's estate Executive's Base Salary until the end of the
month in which Executive dies, and except for any rights and benefits of
Executive under the benefit plans and programs of the Company including, without
limitation, the SERP (as defined below) in which Executive is a participant, as
determined in accordance with the terms and provisions of such plans and
programs. The payout under the EAIP, or equivalent, for the fiscal year in which
Executive's death occurs, shall be annualized and paid at the normal time to
Executive's estate pro rata to the date of death. The value of the "payout
amount," in cash, for any executive long term incentive plan established by the
Company, the plan cycle of which ends within 12 months after the date of
Executive's death, shall be paid at the normal time to Executive's estate.
9. Effect of Termination of Employment.
(a) Without Cause Termination and Constructive
Discharge Absent a Change of Control
or a Special Change of Control. If Executive's employment terminates during the
Period of Employment in circumstances in which no Change of Control (as defined
below) or Special Change of Control (as defined below) has occurred, due to a
Without Cause Termination (as defined below) or a Constructive Discharge (as
defined below), subject to Executive executing a general release of claims as
more fully described in Section 9(e) hereof, the Company will pay or provide, as
the case may be, Executive (or Executive's surviving spouse, estate or personal
representative, as applicable) upon such event: (i) Base Salary earned but
unpaid as of the effective date of such termination of employment; (ii) a lump
sum payment equal to the Severance Pay Amount (as defined below); and (iii)
coverage during the Benefits Continuation Period (as defined below) under the
following employee benefit plans or provisions for comparable benefits outside
such plans, but only to the extent comparable coverage is not provided by any
new employer, (x) the Company's Group Health Insurance Program, (y) the LTD Plan
(as provided under such plan, Executive shall be required to pay the premium),
and (z) the Company's Group Life and Accidental Death and Dismemberment
Insurance (at the levels in effect at the date of termination of employment). As
used in this Agreement, the term "Severance Pay Amount" shall equal the amount
of Executive's then current Base Salary payable to Executive during one month
multiplied by (x) twelve (12) if Executive has been employed by the Company for
less than ten (10) continuous unbroken years of service, or (y) eighteen (18) if
Executive has been employed by the Company for between ten (10) and twenty (20)
continuous unbroken years of service, or (z) twenty-four (24) if Executive has
been employed by the Company for more than twenty (20) continuous unbroken years
of service. [I note what you have said about the company's practices concerning
SERP, pension and other benefits during the "notice " period - thanks.]
(b) Without Cause Termination and Constructive
Discharge Following a Change of
Control or a Special Change of Control. If Executive's employment terminates
during the Period of Employment due to a Without Cause Termination or a
Constructive Discharge within the twenty-four (24) month period following a
Change of Control or a Special Change of Control, then the Company will provide
Executive (or Executive's surviving spouse, estate or personal representative,
as applicable) the following payments and/or benefits upon such event: (i) Base
Salary earned but unpaid as of the effective date of such termination of
employment; (ii) a lump sum amount equal to twenty-four (24) months of
Executive's then current Base Salary; (iii) the "target incentive amount" under
any executive annual incentive plan established by the Company for a fiscal year
ending during the Benefits Continuation Period, and the same "target incentive
amount" for any such executive annual incentive plan, pro-rated to the end of
the Benefits Continuation Period, for a fiscal year commencing during but ending
after the Benefit Continuation Period, or the equivalent under any bonus or
variable compensation plan which may hereafter be adopted by the Company in lieu
of such executive annual incentive plan; (iv) accelerated vesting of all stock
options and restricted stock granted to Executive under any executive long term
incentive plan established by the Company but not yet vested on the effective
date of termination of employment, or at the Company's option, the cash value of
the stock options and restricted stock forfeited under such grants based on fair
market value on the effective date of termination of employment; (v) accelerated
vesting of all "target" restricted performance shares awarded to Executive under
any executive long term incentive plan established by the Company that would be
earned in the fiscal year of termination of employment or subsequent fiscal
years, or at the Company's option, the cash value of the "target" restricted
performance shares forfeited under such awards based on fair market value on the
effective date of termination of employment; (vi) coverage during the Benefits
Continuation Period under the following employee benefit plans or provisions for
comparable benefits outside such plans, but only to the extent comparable
coverage is not provided by any new employer, for (x) the Company's Group Health
Insurance Program, (y) the LTD Plan (as provided under such plan, Executive
shall be required to pay the premium), and (z) the Company's Group Life and
Accidental Death and Dismemberment Insurance (at the levels in effect at the
date of termination of employment); (vii) all payments and benefits to which
Executive may be entitled pursuant to the terms and conditions of the SERP; and
(viii) all payments and benefits to which Executive may be entitled under the
Company's Non-Qualified Supplemental Benefit Plan.
(c) Termination for Cause; Resignation If Executive's
employment terminates due to
a Termination for Cause (as defined below) or a Resignation (as defined below),
Base Salary earned but unpaid as of the date of such termination will be paid to
Executive in a lump sum and the Company will have no further obligations to
Executive under this Agreement. Executive's rights with respect to LTIP grants
and stock options shall be governed by the provisions of such grants and
options. Executive's rights under benefit plans, including those referred to in
Sections 4(e) and (f) above, shall be governed by the provisions of such plans.
In the event any termination of Executive's employment for any reason, Executive
if so requested by the Company agrees to assist in the orderly transfer of
authority and responsibility to Executive's successor.
(d) For purposes of this Agreement, the following
capitalized terms have the
following meanings:
(i) "Benefits Continuation Period" means
that number of months which is
equal to the number of months of Base Salary that Executive receives as a lump
sum severance payment in accordance with Sections 9(a) or 9(b) hereof.
(ii) "Change of Control" shall have the
meaning set forth in the SERP.
(iii) "Constructive Discharge" means: (A)
any material failure by the
Company to fulfill its obligations under this Agreement (including, without
limitation, any reduction of the Base Salary, as the same may be increased
during the Period of Employment, or other material element of compensation); (B)
a material and adverse change to, or a material reduction of, Executive's duties
and responsibilities to the Company; or (C) the relocation of Executive's
primary office to any location more than fifty (50) miles from the Company's
principal executive offices. Executive will provide the Company a written notice
which describes the circumstances being relied upon for all terminations of
employment by Executive resulting from any circumstances claimed to be a
Constructive Discharge thirty (30) days after the event giving rise to the
notice. The Company will have thirty (30) days after receipt of such notice to
remedy the situation prior to Executive's termination of employment due to a
Constructive Discharge.
(iv) "Resignation" means a termination of
Executive's employment by
Executive, other than in connection with Executive's Disability pursuant to
Section 7 hereof, Death pursuant to Section 8 hereof or Constructive Discharge
pursuant to Sections 9(a) or 9(b) hereof.
(v) "SERP" means the Company's 1989
Supplemental Executive Retirement
Plan, as amended or restated from time to time.
(vi) A "Special Change of Control" shall be
deemed to have occurred if a
Person (as hereinafter defined) who was the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of 33-1/3% or more of the Voting Power (as hereinafter defined) of
the Company on January 1, 1989, ceases to have the Voting Power to elect a
majority of the board of directors of the Company. For purposes of this
subsection, each of the terms "Person" and "Voting Power" shall have the meaning
ascribed to it by Section 6.3 of the SERP (as if it had been used in clause (b)
of Section 6.2 of the SERP). For avoidance of doubt, it is understood by
Executive and the Company that the only Person who was the beneficial owner,
directly or indirectly, of 33-1/3% or more of the Voting Power of the Company on
January 1, 1989, was composed of W. Bradford Wiley, Deborah E. Wiley, Peter
Booth Wiley and William Bradford Wiley II (including trusts for which such any
such persons serves as trustee); and it is further understood that as of the
date hereof, such Person was composed of Deborah E. Wiley, Peter Booth Wiley and
William Bradford Wiley II (including trusts for which any such person serves as
trustee). Notwithstanding the foregoing, a Special Change of Control shall not
be deemed to have occurred as a result of a "person" comprising such Person
ceasing to have Voting Power to elect a majority of the Board of Directors of
the Company so long as the other "person" or "persons" who compose such Person,
in the aggregate, continue to have Voting Power to elect a majority of the board
of directors of the Company.
(vii) "Termination for Cause" means: (A)
Executive's refusal or willful
and continued failure to substantially perform Executive's material duties to
the best of Executive's ability under this Agreement (for reasons other than
death or disability), in any such case after written notice thereof; (B)
Executive's gross negligence in the performance of Executive's material duties
under this Agreement; (C) any act of fraud, misappropriation, material
dishonesty, embezzlement, or any similar conduct which might be deemed to affect
Executive's employment or the reputation of the Company; (D) Executive's
conviction of or plea of guilty or nolo contendere to a felony or any crime
involving moral turpitude; or (E) Executive's material and willful violation of
any of the Company's reasonable rules, regulations, policies, directions and
restrictions.
(viii) "Without Cause Termination" or
"Terminated Without Cause" means
termination of Executive's employment by the Company other than in connection
with Executive's Disability pursuant to Section 7 hereof, death pursuant to
Section 8 hereof or Constructive Discharge pursuant to Sections 9(a) or 9(b)
hereof, or the Company's Termination for Cause of Executive.
(e) Conditions to Payment. All payments and benefits
due to Executive under this
Section 9 shall be contingent upon the execution by Executive (or Executive's
beneficiary or estate) of a general release of all claims to the maximum extent
permitted by law against the Company, its affiliates, and their current and
former officers, directors, employees and agents in such form as determined by
the Company in its sole discretion.
(f)Conditional Payments and Limitations.
(i) In the event that (A) any payment or
benefit received or to be
received by Executive pursuant to the terms of this Agreement or of any other
plan, arrangement or agreement of the Company (or any affiliate) (together, the
"Payments") would, in the opinion of independent tax counsel selected by the
Company and reasonably acceptable to Executive ("Tax Counsel"), be subject to
the excise tax (the "Excise Tax") imposed by section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (in whole or in part), determined
as provided below, and (B) the present value of the Payments is less than 115%
of the present value of an amount calculated such that no portion of the
Payments would be subject to the Excise Tax, then the Payments shall be reduced
(but not below zero) until no portion of the payments would be subject to the
Excise Tax. In the event that (C) the Payments would, in the opinion of Tax
Counsel, be subject to the Excise Tax (in whole or in part), determined as
provided below, and (D) the present value of the Payments is equal to or greater
than 115% of the present value of an amount calculated such that no portion of
the Payments would be subject to the Excise Tax, then the Company shall pay to
Executive, at the time specified in Section 9(g)(vi) below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by Executive, after
deduction of the Excise Tax on the Covered Payments (as that term is defined
below) and any federal, state and local income tax and Excise Tax upon the
payment provided for by this Section 9(g), and any interest, penalties or
additions to tax payable by Executive with respect thereto, shall be equal to
the total present value of the Covered Payments at the time such Covered
Payments are to be made.
(ii) For purposes of determining whether any
of the Payments will be
subject to the Excise Tax and the amounts of such Excise Tax: (1) the total
amount of the Payments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, except to the extent that, in the opinion of Tax Counsel, a
Payment (in whole or in part) does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, or such "excess parachute
payments" (in whole or in part) are not subject to the Excise Tax; (2) the
amount of the Payments that shall be treated as subject to the Excise Tax shall
be equal to the lesser of (A) the total amount of the Payments or (B) the amount
of "excess parachute payments" within the meaning of section 280G(b)(1) of the
Code (after applying clause (1) hereof); and (3) the value of any noncash
benefits or any deferred payment or benefit shall be determined by Tax Counsel
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
(iii) In the event that by reason of the
application of this Section
9(g), the Payments to Executive shall be reduced, then Executive may select from
among the Payments those Payments to be reduced.
(iv) As used in this Section 9(g), the term
"Covered Payments" shall
mean the payments and/or benefits payable to Executive pursuant to the
provisions of Sections 9(b)(i), 9(b)(ii), 9(b)(iii), 9(b)(iv) and 9(b)(vi) of
this Agreement (but in the case of Section 9(b)(iv), only with respect to
restricted performance shares awarded to Executive that have been earned prior
to a Change of Control), the SERP and the Company's Nonqualified Supplemental
Benefit Plan. Covered Payments shall not include any payments and/or benefits
other than those listed in the preceding sentence (including, without
limitation, any payments and/or benefits under the EAIP or the LTIP), except as
expressly provided above.
(v) For purposes of determining the amount
of the Gross-Up Payment,
Executive shall be deemed to pay federal income taxes at the highest marginal
rates of federal income taxation applicable to the individuals in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation applicable to individuals as are
in effect in the state and locality of Executive's residence in the calendar
year in which the Gross-Up Payment is to be made, net of the maximum reduction
in federal income taxes that can be obtained from deduction of such state and
local taxes taking into account any limitations applicable to individuals
subject to federal income tax at the highest marginal rates.
(vi) The Gross-Up Payment provided for in
Section 9(g)(i) hereof shall
be made upon the earlier of (A) the making to Executive of any Payment or (B)
the imposition upon Executive or payment by Executive of any Excise Tax.
(vii) If it is established pursuant to a
final determination of a court
or an Internal Revenue Service proceeding or the opinion of Tax Counsel that the
Excise Tax on Covered Payments is less than the amount taken into account under
Section 9(g)(i) hereof, Executive shall repay to the Company within five days of
Executive's receipt of notice of such final determination or opinion the portion
of the Gross-Up Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by Executive if such
repayment results in a reduction in Excise Tax or a federal, state and local
income tax deduction) plus any interest received by Executive on the amount of
such repayment. If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding or the opinion of Tax Counsel
that the Excise Tax on Covered Payments exceeds the amount taken into account
hereunder (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess within five days
of the Company's receipt of notice of such final determination or opinion.
Executive acknowledges that the timing of the Gross-Up Payment made by the
Company to the Executive pursuant to Section 9(g) hereof is for the benefit of
the Executive, and that any repayment of such Gross-Up Payment by Executive to
the Company that may subsequently be required pursuant to this Section 9(g)(vii)
is solely for the purposes of the Company's recoupment of compensation that the
Company overpaid to Executive.
10. Other Duties of Executive During and After the Period of
Employment.
(a) Non-Competition and Non-Disclosure Agreement.
Simultaneously with the execution
of this Agreement, Executive agrees to execute and to comply with the terms of
the Non-Competition and Non-Disclosure Agreement (hereinafter referred to as the
"Non-Competition Agreement") in the form provided to Executive by the Company.
The terms and conditions of the Non-Competition Agreement are incorporated
herein by reference and made a part of this Agreement as if fully set forth
herein.
(b) Agreement To Arbitrate. Simultaneous with the
execution of this Agreement,
Executive agrees to execute and to comply with the terms of the Agreement to
Arbitrate (hereinafter referred to as the "Agreement to Arbitrate") in the form
provided to Executive by the Company. The terms and conditions of the Agreement
to Arbitrate are incorporated herein by reference and made a part of this
Agreement as if fully set forth herein.
11. Indemnification. The Company will indemnify Executive to
the fullest extent permitted by the laws of the state of the Company's
incorporation in effect at that time, or the certificate of incorporation and
by-laws of Company, whichever affords the greater protection to Executive.
12. Mitigation. Executive will not be required to mitigate the
amount of any payment provided for hereunder by seeking other employment or
otherwise, nor will the amount of any such payment be reduced by any
compensation earned by Executive as the result of employment by another employer
after the date Executive's employment hereunder terminates.
13. Withholding Taxes. Executive acknowledges and agrees that
the Company may directly or indirectly withhold from any payments under this
Agreement all federal, state, city or other taxes that will be required pursuant
to any law or governmental regulation.
14. Relocation and Other Expenses.
(a) Relocation. The Company will reimburse Executive for
reasonable relocation
expenses, including commission on the sale of Executive's UK residence, related
legal and closing costs, moving costs, and temporary storage costs, upon
submission of vouchers with appropriate documentation. In the event of a
Resignation, as defined in Section 9(d)(iv) above, or a Termination for Cause,
as defined in Section 9(d) (vii) above, in either case before the anniversary of
the Commencement Date, Executive will promptly repay the Relocation Expenses to
the Company.
(b) Temporary Housing. The Company will, at its own
expense, provide to Executive
reasonable lodging in a temporary residence, following relocation, for a period
of up to 90 days.
(c) Insurance. The Company will provide to Executive, or
reimburse Executive for the
cost of, private disability insurance, at a cost not to exceed approximately
$10,000 per annum, to the extent generally comparable coverage is not available
under the Company's regular plan for senior executives.
15 Effect of Prior Agreements. This Agreement, together with
the Non-Competition Agreement and the Agreement to Arbitrate, constitute the
sole and entire agreements and understandings between Executive and the Company
with respect to the matters covered thereby. These agreements supersede all
prior and contemporaneous agreements, understandings or other arrangements,
whether written or oral, concerning the subject matter thereof. Upon execution
of this Agreement, Executive's existing employment agreement with the Company
shall be superceded by this Agreement in its entirety and shall be of no further
force and effect.
16. Notices. Any notice required, permitted, or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or sent by registered or certified mail, return receipt requested, postage and
fees prepaid, as follows:
If to the Company, at:
John Wiley & Sons, Inc.
111 River Street
Hoboken, New Jersey 07030
Attention: Chief Executive Officer
with a copy to:
John Wiley & Sons, Inc.
111 River Street
Hoboken, New Jersey 07030
Attention: General Counsel
If to Executive, at:
(Executive to notify Company promptly upon
establishment of new permanent residence.)
Either of the parties hereto may at any time and from time to time change the
address to which notices shall be sent hereunder by notice to the other party.
17. Assignability. The obligations of Executive may not be
delegated and, except as expressly provided in Section 8 hereof relating to the
designation of a beneficiary in the event of death, Executive may not, without
the Company's written consent thereto, assign, transfer, convey, pledge,
encumber, hypothecate or otherwise dispose of this Agreement or any interest
therein. Any such attempted delegation or disposition shall be null and void and
without effect. The Company and Executive agree that this Agreement and all of
the Company's rights and obligations hereunder may be assigned or transferred by
the Company to and may be assumed by and become binding upon and may inure to
the benefit of any affiliate of or successor to the Company. The term
"successor" shall mean (with respect to the Company or any of its subsidiaries)
any other corporation or other business entity which, by merger, consolidation,
purchase of the assets, or otherwise, acquires all or a material part of the
assets of the Company. Any assignment by the Company of its rights or
obligations hereunder to any affiliate of or successor to the Company shall not
be a termination of employment for purposes of this Agreement.
18. Modification. This Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing by the party
charged with waiver. A waiver will operate only as to the specific term or
condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
19. Governing Law. This Agreement will be construed and
interpreted pursuant to the laws of the State of New York, without regard to
such State's conflict of law rules.
20. Separability. All provisions of this Agreement are
intended to be severable. In the event any provision or restriction contained
herein is held to be invalid or unenforceable in any respect, in whole or in
part, such finding will in no way affect the validity or enforceability of any
other provision of this Agreement. The parties hereto further agree that any
such invalid or unenforceable provision will be deemed modified so that it will
be enforced to the greatest extent permissible under law, and to the extent that
any court of competent jurisdiction determines any restriction herein to be
unreasonable in any respect, such court may limit this Agreement to render it
reasonable in the light of the circumstances in which it was entered into and
specifically enforce this Agreement as limited.
21. No Waiver: No course of dealing or any delay on the part
of the Company or Executive in exercising any rights hereunder shall operate as
a waiver of any such rights. No waiver of any default or breach of this
Agreement shall be deemed a continuing waiver of any other breach or default.
22. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered, effective as of the date first indicated above by a
duly authorized officer of the Company.
EXECUTIVE: JOHN WILEY & SONS, INC.
By:
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Signature Signature
Gary M. Rinck William J. Pesce
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Print name Print name
President and Chief Executive Officer
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