SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended October 31, 1998 Commission File No. 1-11507
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from to
JOHN WILEY & SONS, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-5593032
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
605 THIRD AVENUE, NEW YORK, NY 10158-0012
- --------------------------------------- ------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, (212) 850-6000
including area code ------------------------------------
NOT APPLICABLE
Former name, former address, and former fiscal year,
if changed since last report
Indicate by check mark, whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding of each of the Registrant's classes of common
stock as of October 31, 1998 were:
Class A, par value $1.00 - 25,558,683
Class B, par value $1.00 - 6,124,116
This is the first page of a twelve page document
JOHN WILEY & SONS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements.
Condensed Consolidated Statements of Financial Position - Unaudited
as of October 31, 1998 and 1997 and April 30, 1998................... 3
Condensed Consolidated Statements of Income - Unaudited
for the Three and Six Months ended October 31, 1998 and 1997......... 4
Condensed Consolidated Statements of Cash Flow - Unaudited
for the Three and Six Months ended October 31, 1998 and 1997......... 5
Notes to Unaudited Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................. 10
Item 6. Exhibits and Reports on Form 8-K..................................... 10
"Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995........................ 11
SIGNATURES .................................................................. 12
EXHIBITS
27 Financial Data Schedule
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
October 31, April 30,
-------------------------------
Assets ................................... 1998 1997 1998
-------- -------- --------
Current Assets
Cash and cash equivalents ............. $ 71,867 38,500 127,405
Accounts receivable .................... 68,919 66,545 56,147
Inventories ............................ 44,923 51,295 44,912
Deferred income tax benefits ........... 443 7,139 456
Prepaid expenses ....................... 6,528 6,080 8,690
-------- -------- --------
Total Current Assets .................. 192,680 169,559 237,610
Product Development Assets ............... 36,028 35,059 36,039
Property and Equipment ................... 34,073 33,511 34,310
Intangible Assets ........................ 178,966 158,676 172,798
Deferred Income Tax Benefits ............. 15,570 17,081 15,593
Other Assets ............................. 11,618 11,236 10,564
======== ======== ========
Total Assets ........................... $468,935 425,122 506,914
======== ======== ========
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable and current portion
of long-term debt .................. $ -- 163 --
Accounts and royalties payable ......... 53,775 48,896 36,854
Deferred subscription revenues ......... 34,091 29,633 99,225
Accrued income taxes ................... 5,848 6,662 1,174
Other accrued liabilities .............. 40,603 33,536 41,100
-------- -------- --------
Total Current Liabilities .............. 134,317 118,890 178,353
Long-Term Debt ........................... 125,000 125,000 125,000
Other Long-Term Liabilities .............. 28,353 26,169 26,663
Deferred Income Taxes .................... 16,276 15,199 16,147
Shareholders' Equity ..................... 164,989 139,864 160,751
======== ======== ========
Total Liabilities & Shareholders' Equity $468,935 425,122 506,914
======== ======== ========
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands except per share information)
Three Months Six Months
Ended October 31, Ended October 31,
------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues ...................... $ 123,640 115,886 $ 245,731 227,972
Costs and Expenses
Cost of sales ............... 42,203 39,776 84,570 77,926
Operating and administrative
expenses ................ 63,798 63,570 124,172 121,731
Amortization of intangibles . 2,333 2,214 4,617 4,278
--------- --------- --------- ---------
Total Costs and Expenses .... 108,334 105,560 213,359 203,935
--------- --------- --------- ---------
Operating Income .............. 15,306 10,326 32,372 24,037
Interest Income and Other ..... 1,156 474 2,578 1,351
Interest Expense .............. (1,969) (1,989) (3,951) (3,949)
--------- --------- --------- ---------
Interest Income (Expense) - Net (813) (1,515) (1,373) (2,598)
--------- --------- --------- ---------
Income Before Taxes ........... 14,493 8,811 30,999 21,439
Provision For Income Taxes .... 5,218 3,172 11,160 7,718
--------- --------- --------- ---------
Net Income .................... $ 9,275 5,639 $ 19,839 13,721
========= ========= ========= =========
Net Income Per Share
Diluted ..................... $ 0.28 0.17 $ 0.60 0.42
Basic ....................... $ 0.29 0.18 $ 0.63 0.44
Cash Dividends Per Share
Class A Common .............. $ 0.06375 0.05625 $ 0.12750 0.11250
Class B Common .............. $ 0.05625 0.05000 $ 0.11250 0.10000
Average Shares
Diluted ..................... 33,193 32,853 33,215 32,697
Basic ....................... 31,515 31,546 31,578 31,503
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
(In thousands)
For The Six Months
Ended October 31,
----------------------
1998 1997
--------- ---------
Operating Activities
Net income ................................... $ 19,839 13,721
Non-cash items ............................... 37,700 28,748
Net change in operating assets and liabilities (69,044) (56,652)
--------- ---------
Cash Used In Operating Activities ............ (11,505) (14,183)
--------- ---------
Investing Activities
Additions to product development assets ...... (14,222) (15,512)
Additions to property and equipment .......... (4,203) (5,236)
Acquisition of publishing assets ............. (8,412) (1,295)
--------- ---------
Cash Used in Investing Activities ............ (26,837) (22,043)
--------- ---------
Financing Activities
Purchase of treasury shares .................. (12,989) (1,888)
Net borrowings of short-term debt ............ -- 9
Cash dividends ............................... (3,966) (3,504)
Proceeds from exercise of stock options ...... 710 1,043
--------- ---------
Cash Used for Financing Activities ........... (16,245) (4,340)
--------- ---------
Effects of Exchange Rate Changes on Cash ....... (951) (50)
--------- ---------
Cash and Cash Equivalents
Decrease for Period .......................... (55,538) (40,616)
Balance at Beginning of Period ............... 127,405 79,116
========= =========
Balance at End of Period ..................... $ 71,867 38,500
========= =========
Cash Paid During the Period for
Interest ..................................... $ 3,920 3,902
Income taxes ................................. $ 6,425 4,066
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the Company's
consolidated financial position as of October 31, 1998 and 1997, and April
30, 1998, and results of operations and cash flows for the periods ended
October 31, 1998 and 1997. These statements should be read in conjunction
with the most recent audited financial statements contained in the
Company's Form 10-K for the fiscal year ended April 30, 1998.
2. The results for the three and six months ended October 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
3. Share data has been restated to reflect the 2-for-1 stock split in October
1998. A reconciliation of the shares used in the computation of income per
share follows:
Three Months Six Months
Ended October 31, Ended October 31,
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
(thousands)
Weighted average shares outstanding
31,911 31,938 31,966 31,894
Less: Unearned deferred compensation
shares ............................. (396) (392) (388) (391)
------- ------- ------- -------
Shares used for basic income per share 31,515 31,546 31,578 31,503
Dilutive effect of stock options and
other stock awards ................. 1,678 1,307 1,637 1,194
------- ------- ------- -------
Shares used for diluted income per
share .............................. 33,193 32,853 33,215 32,697
------- ------- ------- -------
4. Inventories were as follows:
October 31, April 30,
---------------------------------------
1998 1997 1998
--------- --------- ---------
(thousands)
Finished goods .................... $ 36,235 $ 39,639 $ 38,039
Work-in-process ................... 5,940 8,775 6,864
Paper, cloth and other ............ 5,023 4,872 2,084
-------- -------- --------
47,198 53,286 46,987
LIFO reserve ...................... (2,275) (1,991) (2,075)
-------- -------- --------
Total inventories ................. 44,923 51,295 $ 44,912
-------- -------- --------
5. In the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which requires disclosure of comprehensive income and its
components, as defined. Comprehensive income was as follows:
Three Months Six Months
Ended October 31, Ended October 31,
------------------------------------------
1998 1997 1998 1997
--------- --------- --------- --------
(thousands)
Net Income ........................ $ 9,275 $ 5,639 $ 19,839 $ 13,721
Other Comprehensive Income (Loss) -
Foreign Currency Translation
Adjustments .................. 169 162 (1,161) 432
-------- -------- -------- --------
Comprehensive Income .............. $ 9,444 $ 5,801 $ 18,678 $ 14,153
-------- -------- -------- --------
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 1998
FINANCIAL CONDITION
During this seasonal period of cash usage, operating activities used $11.5
million of cash, or $2.7 million less than the prior year's comparable period,
primarily due to the higher income. The use of cash during this period is
consistent with the seasonality of the journal subscription business and the
educational sector's receipts cycles which occur, for the most part, in the
second half of the fiscal year.
Investing activities used $26.8 million during the first six months of the year,
or $4.8 million more than the comparable prior year period, primarily due to
acquisition activity.
Financing activities primarily reflect dividend payments and purchase of
treasury shares during the period.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED OCTOBER 31, 1998
Revenues for the second quarter advanced 7% to $123.6 million compared with
$115.9 million in the prior year. Operating income for the current quarter
increased 48% to $15.3 million compared with $10.3 million in the prior year.
Net income increased 64% to $9.3 million from $5.6 million in the prior year.
The improvement in operating results for the quarter was led by professional and
trade publishing due to strong frontlist and backlist sales. The college and
scientific, medical and technical publishing programs also contributed to the
revenue growth. International operations, including Wiley-VCH, registered strong
revenue gains, despite being adversely affected somewhat by the continuing
weakness in the Asian economies and the weakened Canadian and Australian
currencies.
Cost of sales as a percentage of revenues decreased from 34.3% in the prior year
to 34.1%. Operating expenses as a percentage of revenues were 51.6% in the
current quarter compared with 54.9% in the prior year's second quarter. The
improvement is a result of cost containment measures.
Interest income increased $.7 million compared with the prior year due to higher
cash balances. The effective tax rate of 36% in the current quarter was the same
as the prior year.
RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1998
Revenues for the first six months of fiscal 1999 were $245.7 million, or 8%
ahead of the $228.0 million in the comparable prior year period. Operating
income of $32.4 million increased 35% over the prior year period. Net income of
$19.8 million for the current year increased 45% over the prior year.
Results for the first half of the year reflect improvement in all of the
Company's core publishing programs - college, professional and trade, and
scientific, technical and medical. The college and professional and trade
programs registered strong double-digit revenue growth. The scientific,
technical and medical programs also contributed to the first-half revenue
growth. International operations, including Wiley-VCH, were strong with the
exception of Asia, which is still feeling the effects of the economic downturn
in that region.
For the year-to-date, costs of sales as a percentage of revenues was 34.4%
compared with 34.2% in the prior year. Operating expenses as a percent of
revenues declined from 53.4% to 50.5% due to cost containment measures.
Interest income increased by $1.2 million due to higher cash balances in the
current year. The effective tax rate of 36% was the same for both periods.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which specifies the accounting and
disclosure requirements for such instruments, and is effective for the
Company's fiscal year beginning on May 1, 2000. In the opinion of the
Company's management, it is anticipated that the adoption of this new
accounting standard will not have a material effect on the consolidated
financial statements of the Company.
YEAR 2000 ISSUES
The Company has essentially completed the review of its systems and
products to determine the extent and impact of the year 2000 issues, and
has begun implementing the needed changes. Many of the Company's systems
are new and were designed to accommodate the year 2000 issue when
originally installed. The Company currently anticipates completing
corrective measures to its systems and products by mid-year of calendar
1999. The total cost to remedy the situation is currently estimated to be
approximately $2 million, of which $1.4 million has been expended to date.
The Company is in the process of communicating with its customers and
suppliers in an effort to assess how they intend to resolve their year 2000
issues. The Company at this time is not able to form an opinion as to
whether its customers or suppliers will be able to resolve their year 2000
issues in a satisfactory and timely manner, or the magnitude of the adverse
impact it would have on the Company's operations, if they fail to do so.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven member countries of the European union
are scheduled to establish fixed conversion rates between their existing
legal currencies and the Euro, and to adopt the Euro as their common legal
currency.
The Company is in the process of assessing the impact that the conversion
to the Euro will have on its operations and the modifications that will be
required to its systems. Although it is still in the early stages of
assessment, the Company believes that the Euro conversion should not have a
material effect on its operations.
* * * * *
The anticipated costs and timing of resolving the year 2000 and Euro issues
are based on numerous assumptions and estimates relating to future events
including the continued availability and cost of the personnel required to
modify the systems, the timely resolution of the third party customer and
supplier interface issues, and other similar uncertainties. The Company is
in the process of developing contingency plans in the event remediation
measures will not be completed on a timely basis.
PART II - OTHER INFORMATION
Item 4. Submission of Matters To a Vote of Security Holders The following
matters were voted upon at the annual meeting of shareholders of the
Company on September 17, 1998.
Election of Directors
Ten directors as indicated in the Proxy Statement were elected to the
Board, three of whom were elected by the holders of Class A Common
Stock, and seven by the holders of Class B Common Stock.
Ratification of Amendment to the Company's Restated Certificate of
Incorporation
The amendment increased the total number of shares of all classes of
capital stock which the Company shall have authority to issue
128,000,000 shares, consisting of 2,000,000 in shares of Preferred
Stock, 90,000,000 shares of Class A Common Stock, and 36,000,000
shares of Class B Common Stock.
The amendment was ratified as follows:
Votes For 6,440,652
Votes Against 1,063,618
Abstentions 10,216
Ratification of Appointment of Arthur Andersen LLP, as Independent
Public Accountants for the Fiscal Year Ending April 30, 1999
The appointment was ratified as follows:
Votes For 7,509,468
Votes Against 3,060
Abstentions 1,956
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) - Certificate of Amendment of the Certificate of
Incorporation Dated as of September 1998
3(ii) - By-Laws as Amended and Restated Dated as of
September 1998 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
October 31, 1998
"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 pace, acceptance, and level of
investment in emerging new electronic technologies and products; (ii) subscriber
renewal rates for the Company's journals; (iii) the consolidation of the retail
book trade market; (iv) the seasonal nature of the Company's educational
business and the impact of the used book market; (v) the ability of the Company
and its customers and suppliers to satisfactorily resolve the year 2000 and Euro
issues in a timely manner; (vi) worldwide economic and political conditions; and
(vii) other factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
update or revise any such forward-looking statements to reflect subsequent
events or circumstances.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN WILEY & SONS, INC.
Registrant
By /s/William J. Pesce
-------------------
William J. Pesce
President and
Chief Executive Officer
By /s/Robert D. Wilder
-------------------
Robert D. Wilder
Executive Vice President and
Chief Financial Officer
Dated: December 4, 1998