WLY

Business Context and Reporting Period

Company: John Wiley & Sons, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: April 30, 2002
Business Overview: A global publisher of print and electronic products serving professional, scientific, technical, medical (STM), and higher education markets. Core operations include books, journals, and online services distributed worldwide.

Key Financial Metrics

Note: Reported figures include a $12.3 million pre-tax unusual charge related to headquarters relocation.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 20% to $734.4 million. Excluding the contribution from the Hungry Minds acquisition, organic revenue growth was 5%.
• Acquisitions: The Company acquired Hungry Minds, Inc. for approximately $185 million (largest in company history), contributing $91 million in revenue. Other acquisitions included A&M Publishing, GIT Verlag, Frank J. Fabozzi Publishing, and Wrightbooks.
• Profitability Impact: Operating income declined 8% to $87.8 million, primarily due to a $12.3 million one-time relocation charge and a $5 million write-off of two small investments. Excluding these items, operating income would have increased 5% to $100.1 million.
• Debt Levels: Long-term debt increased significantly from $65 million to $235 million to finance the Hungry Minds acquisition and provide working capital.
• Segment Performance:
  • Professional/Trade: Revenues up 56% (driven by Hungry Minds); direct contribution to profit up 75%.
  • STM: Revenues up 6%; direct contribution down 5% due to investment write-offs.
  • Higher Education: Revenues up 6%; direct contribution up 6%.

Guidance, Outlook, and Risks

• Management Commentary: Management expects the relocation of headquarters to Hoboken, NJ, to provide a more efficient environment. Additional pre-tax charges of approximately $2.5 million are expected in the first quarter of fiscal 2003 related to the move.
• Capital Expenditures: Projected at approximately $131 million for fiscal 2003, an increase of $50 million over fiscal 2002, driven by facility relocation and increased investment in electronic media and product development.
• Accounting Changes: The Company is evaluating the impact of SFAS No. 142 (Goodwill and Other Intangible Assets), effective fiscal 2003. This is expected to eliminate approximately $10 million in annual amortization charges related to goodwill and indefinite-life intangibles.
• Risks and Contingencies:
  • Credit Risk: Top ten book customers account for 31% of total revenues and 48% of gross trade accounts receivable. Subscription agents account for 25% of revenues.
  • Market Risk: Exposure to foreign exchange fluctuations (Euro, Sterling, Asian currencies) and variable interest rates on $265 million of debt.
  • Industry Trends: Continued pressure from used textbook sales and consolidation among book wholesalers and retailers.

Investor Verification Checklist

• Acquisition Integration: Verify the realization of synergies and revenue growth from the Hungry Minds acquisition beyond the initial fiscal year.
• Debt Servicing: Assess the impact of increased debt levels ($235 million) on future interest expenses and liquidity, particularly given the variable rate nature of the loans.
• Relocation Costs: Confirm the magnitude of the additional $2.5 million charge anticipated in Q1 2003 and the timeline for the headquarters move.
• Goodwill Accounting: Monitor the impact of SFAS No. 142 adoption in fiscal 2003 on reported earnings and the potential for future impairment charges.
• Customer Concentration: Review the financial stability of the top ten book customers and subscription agents, which represent a significant portion of receivables and revenue.