WLY

Business Context and Reporting Period

Company: John Wiley & Sons, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended July 31, 2003 (First Quarter of Fiscal Year 2004)
Business Overview: A global publisher of print and electronic products, including professional/consumer books, scientific/technical/medical journals, and educational materials. Operations span the U.S., Europe, Asia, Australia, and Canada.

Key Financial Metrics

Liquidity: Despite a reported negative working capital of $11.3 million, the company notes this is due to $84.2 million in deferred subscription revenue (cash received but not yet recognized). The company maintains $140.0 million in available revolving credit facilities.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 6% year-over-year, driven by growth in U.S. Professional/Trade and Higher Education segments. Excluding foreign exchange translation, organic revenue growth was 4%.
• Profitability: Net income rose 9% to $21.8 million. Operating income increased 8% to $33.2 million. Gross margin improved to 67.2% due to favorable product mix and improved trade returns.
• Unusual Items: The prior year quarter included a one-time relocation charge of $2.5 million ($1.5 million after-tax) related to the headquarters move to Hoboken, NJ. Excluding this charge, prior year operating income was flat year-over-year.
• Cash Flow: Operating cash flow usage increased to $14.8 million from $7.6 million, primarily due to the accrual of relocation costs in the prior year and improved cash collections in the current year.
• Dividends: The quarterly dividend was increased by 30% from $0.05 to $0.065 per share, effective July 17, 2003.

Guidance, Outlook, and Risks

• Capital Expenditures: Projected full-year capital spending for product development is $60 million; property and equipment spending is projected at approximately $35 million.
• Debt Maturity: $35 million of variable rate loans are due on October 31, 2003. Management intends to use existing cash and credit facilities to satisfy this obligation.
• Market Risks:
  • Foreign Exchange: The company uses forward contracts to hedge currency volatility. A 1% change in interest rates on variable debt would impact annual net income by approximately $1.6 million.
  • Credit Risk: The top ten book customers accounted for 26% of fiscal 2003 revenue. The bankruptcy of subscription agent Rowecom Inc. in January 2003 is expected to have an immaterial impact on STM journal revenue.
• Segment Performance:
  • Professional/Trade: Revenue up 8%; margin improved to 23.9%.
  • STM: U.S. revenue down 2% due to sluggish book sales and Rowecom bankruptcy; global journal revenue up 4%.
  • Higher Education: U.S. revenue up 6%; global revenue up 8%.
  • Europe: Revenue up 6% (down 3% excluding FX); strong journal performance offset by weak UK book sales.

Investor Verification Checklist

• Deferred Revenue: Verify the sustainability of the $84.2 million deferred subscription revenue balance and its impact on future cash flow recognition.
• Debt Servicing: Confirm the company's ability to refinance or repay the $35 million debt maturing in October 2003 given the current cash balance of $8.1 million.
• Rowecom Impact: Assess the long-term impact of the Rowecom bankruptcy on STM journal subscription renewals and revenue stability.
• FX Sensitivity: Monitor the effectiveness of foreign currency hedges given the significant portion of revenue generated outside the U.S.
• Operating Leverage: Evaluate whether the 9% increase in operating and administrative expenses (excluding relocation) is sustainable relative to revenue growth.