OUR STM PUBLISHING business, which serves the information needs of researchers and professionals worldwide, continued its vigorous growth in fiscal 1997. STM publishing generated approximately 47% of Wiley's revenues for the year. Our primary focus is on chemistry and the life sciences, with strong programs also in physics, mathematics, statistics, technology, and other subject areas. A fundamental strategy is to develop journals, newsletters, subscription books, multivolume reference works, and other continuity products. Such products serve customers well by keeping them up to date in fast-moving fields of science and technology, and they benefit Wiley by generating predictable income and substantial cash flow. VCH ACQUISITION A highlight was the acquisition of 90% of German-based VCH Publishing Group, renamed Wiley-VCH Verlag GmbH. Wiley-VCH people have developed some of the most successful English-language and German-language chemistry, physics, and materials journals in the world. In addition, Ernst & Sohn, a Wiley-VCH company, is a leading civil engineering publisher in Germany. All told, Wiley-VCH publishes nearly 100 scholarly and professional journals, as well as more than 500 books annually, with a backlist of 3,000 titles. With the acquisition, Wiley has moved into the top rank of STM publishers and is number one in commercial chemistry publishing at the research level. We have the competitive strength of a market leader, including the critical mass to develop new products in print and electronic formats. Since acquiring VCH, we have been implementing a pan-European approach to STM publishing, working with the German Chemical Society, our partner in Wiley-VCH. We have already launched three newly structured chemistry journals. One is Chemistry: A European Journal, a broad-based, English-language publication of general chemistry. The German and Royal Netherlands societies have merged three existing English-language journals to form Chemische Berichte/Recueil (Inorganic and Organometallic Chemistry) and Liebigs Annalen/Recueil (Organic and Bioorganic Chemistry), both published by Wiley-VCH. Negotiations are under way with scientific societies in the Netherlands, Italy, Belgium, France, and other countries to join this pan-European publishing program. Their participation would further extend the market reach of these and other publications and increase the number of manuscripts submitted by European scientists. Another opportunity in acquiring VCH was to reduce its costs and increase its profitability through operational improvements. Cost reductions to date have met expectations, with savings being achieved through downsizing and the sale or discontinuation of noncore publishing businesses. Wiley-VCH remains on track to be a net contributor to Wiley's earnings about two years following acquisition. PRINT JOURNALS AND NEWSLETTERS: A STRONG MARKET Including those acquired with VCH, we publish about 400 STM and professional journals, roughly half in Europe and half in the United States. Wherever the journals are published, markets are worldwide. STM journals are a growth engine for Wiley. We continue to invest in new journals, both print and electronic, while increasing revenues and operating income. A major recent launch was Cancer Cytopathology, an offspring of Cancer which we publish for the American Cancer Society. Cancer Cytopathology goes to the entire institutional subscriber base of Cancer and is optional for individual subscribers. In an important new initiative, we are building an STM newsletter publishing business, which is distinct from academically refereed journal publishing. Early in the fiscal year, we acquired Technical Insights, Inc., which publishes print and electronic newsletters in areas of science and technology. Titles include Inside R&D, Advanced Manufacturing Technology, and Genetic Technology News. We subsequently purchased Nutrition Research Newsletter and Food Safety Notebook from Lyda Associates, Inc. These newsletters abstract information from government reports, scientific journals, and other sources. We also purchased Science & Government Report, which covers U.S. government policies and activities affecting and relating to science and technology. ELECTRONIC JOURNALS: A RAPIDLY EMERGING BUSINESS Print journals continue to be a thriving business. Our subscription renewal rates remained strong in fiscal 1997. However, a transition toward the electronic distribution of scientific research is under way. We are actively developing the technologies and publishing programs to continue as a premier STM publisher in an online environment. We pioneered the first high-quality interactive peer-reviewed STM journal on the Internet, Computer Aided Surgery (originally called the Journal of Image Guided Surgery), and have introduced online versions of other journals, including Cancer Online, Electronic Journal of Theoretical Chemistry, and Glacial Geology and Geomorphology. We now plan to provide access to nearly all our STM journals over the World Wide Web as full-text electronic files, while continuing to publish them in print. This new service is called Wiley InterScience. With the rapid emergence of the Internet, online technology has become a powerful tool for processing and delivering information. Wiley InterScience will address the needs of our authors and customers. Important features will include a search capability across the entire Wiley journals list for articles of interest, and a personal home page for each user on which to activate automated search procedures and store search results and personal annotations. Users will be able to download and print articles in which illustrations, art, tables, and charts are fully integrated with text. In addition, each title will have its own Web site that will provide detailed information about the journal, with links to related products and external sites of interest. The Wiley InterScience service will provide a mechanism by which any researcher anywhere in the world can locate information about the content of our journals, how to purchase them, and how to contribute articles. We view print and electronic delivery as complementary, not competitive. It is likely that most libraries and institutional subscribers will want both print and electronic access, at least initially. We will offer customers packages that make technological and economic sense for them as well as for us. Online journals tie in naturally to a host of potential enhancements, such as access to encyclopedias, handbooks, and databases. The very nature of our STM business will change as new and expanded databases provide electronic access to all the various sources of information we have, including the sources we acquired with Wiley-VCH. The more content we offer, the more attractive our online products will be to customers. Demand for important, reliable, and timely scientific, technical, and medical information continues to increase worldwide. Regardless of a very competitive STM publishing market environment, our business will prosper so long as we provide the content our customers need and supply this content via the delivery mechanisms they prefer. We remain committed to doing just that. MAJOR REFERENCE WORKS We are increasing our publishing programs for encyclopedias and other major reference works, supported by an expanded global marketing and sales effort. Many research libraries, forced to limit their acquisitions because of tight budgets, are favoring reference works that provide comprehensive information on a topic. New in fiscal 1997 were Meyers: Encyclopedia of Molecular Biology and Molecular Medicine; the second edition of Brody/Marsh: Encyclopedia of Packaging Technology; an abridged version of Bisio/Boots: Encyclopedia of Energy and the Environment; and a CD-ROM version of Patty's Industrial Hygiene and Toxicology. We are developing the Wiley Encyclopedia Series, branded with the Wiley name, to leverage our visibility and reputation within the scientific community. Reference books are an important part of our program. A sampling of new titles includes Telecommunication System Engineering, third edition, by Robert L. Freeman, for engineers and graduate students; Atlas for Computing Mathematical Functions: An Illustrated Guide for Practitioners With Programs in C and Mathematica, by William J. Thompson, for professionals and researchers in the sciences; and The Medical Management of AIDS in Women, by Deborah Cotton and D. Heather Watts, for physicians, nurses, public health officials, researchers, and AIDS policymakers. The International Textbook of Diabetes Mellitus, second edition, by K.G.M.M. Alberti et al, is an important reference work by an international team of experts, published by Wiley-Europe. Also new from Wiley-Europe, reflecting our strong worldwide program in polymer science, is Handbook of Organic Conductive Molecules and Polymers, by Hari Singh Nalwa.