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 January 31, 2006 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)
111 RIVER STREET, HOBOKEN NJ 07030
- ---------------------------- ------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (201) 748-6000
----------------------------
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 [ ]
Check whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act). YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
The number of shares outstanding of each of the Registrant's classes of common
stock as of February 28, 2006 were:
Class A, par value $1.00 - 46,857,955
Class B, par value $1.00 - 10,671,743
This is the first page of a 30-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 January 31, 2006 and 2005, and April 30, 2005...........................................3
Condensed Consolidated Statements of Income - Unaudited
for the three and nine months ended January 31, 2006 and 2005.................................4
Condensed Consolidated Statements of Cash Flows - Unaudited
for the nine months ended January 31, 2006 and 2005...........................................5
Notes to Unaudited Condensed Consolidated Financial Statements................................6-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................24
Item 4. Controls and Procedures.........................................................................25
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................25
SIGNATURES AND CERTIFICATIONS...........................................................................26-28
EXHIBITS................................................................................................29-30
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
January 31, April 30,
--------------------------------------- ----------------
2006 2005 2005
----------------- ------------------- ----------------
Assets
Current Assets
Cash and cash equivalents $ 75,301 125,841 $ 89,401
Marketable securities - 14,000 10,000
Accounts receivable 177,118 166,588 137,787
Inventories 88,318 78,133 83,372
Deferred income tax benefits 9,815 9,909 5,921
Prepaids and other 12,670 13,597 12,437
----------------- ------------------- ----------------
Total Current Assets 363,222 408,068 338,918
Product Development Assets 63,402 59,755 61,511
Property, Equipment and Technology 102,594 115,083 115,383
Intangible Assets 304,541 285,337 291,041
Goodwill 197,380 195,034 195,563
Deferred Income Tax Benefits 5,356 7,772 4,285
Other Assets 27,351 22,679 25,868
----------------- ------------------- ----------------
Total Assets $ 1,063,846 1,093,728 $ 1,032,569
================= =================== ================
Liabilities & Shareholders' Equity
Current Liabilities
Accounts and royalties payable $ 99,449 91,996 $ 70,958
Deferred subscription revenue 150,614 143,510 142,766
Accrued income taxes 31,140 42,329 36,376
Accrued pension liability 6,609 5,159 6,229
Other accrued liabilities 66,912 69,952 84,982
----------------- ------------------- ----------------
Total Current Liabilities 354,724 352,946 341,311
Long-Term Debt 190,000 200,000 196,214
Accrued Pension Liability 67,614 53,919 62,116
Other Long-Term Liabilities 35,291 32,940 34,652
Deferred Income Taxes 10,057 106 1,702
Shareholders' Equity
Class A & Class B common stock 83,191 83,190 83,191
Additional paid-in-capital 65,193 53,205 55,478
Retained earnings 587,189 506,980 507,249
Accumulated other comprehensive (loss)/gain (517) 11,822 1,982
Unearned deferred compensation (3,851) (3,069) (3,074)
Treasury stock (325,045) (198,311) (248,252)
----------------- ------------------- ----------------
Total Shareholders' Equity 406,160 453,817 396,574
----------------- ------------------- ----------------
Total Liabilities & Shareholders' Equity $ 1,063,846 1,093,728 $ 1,032,569
================= =================== ================
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 Nine Months
Ended January 31, Ended January 31,
------------------------------------- -----------------------------------
2006 2005 2006 2005
----------------- ---------------- ----------------- ----------------
Revenue $ 278,189 258,428 $ 777,621 732,417
Costs and Expenses
Cost of sales 91,207 85,708 254,617 246,184
Operating and administrative expenses 129,007 119,630 383,286 357,232
Amortization of intangibles 3,874 2,665 9,990 7,675
----------------- ---------------- ----------------- ----------------
Total Costs and Expenses 224,088 208,003 647,893 611,091
----------------- ---------------- ----------------- ----------------
Operating Income 54,101 50,425 129,728 121,326
Interest Income and Other, net 293 180 689 281
Interest Expense (3,700) (2,154) (7,927) (5,002)
----------------- ---------------- ----------------- ----------------
Net Interest Expense and Other (3,407) (1,974) (7,238) (4,721)
----------------- ---------------- ----------------- ----------------
Income Before Taxes 50,694 48,451 122,490 116,605
Provision For Income Taxes 9,745 15,660 26,680 37,471
----------------- ---------------- ----------------- ----------------
Net Income $ 40,949 32,791 $ 95,810 79,134
================= ================ ================= ================
Income Per Share
Diluted $ 0.69 0.53 $ 1.59 1.27
Basic $ 0.71 0.54 $ 1.64 1.30
Cash Dividends Per Share
Class A Common $ 0.09 0.08 $ 0.27 0.23
Class B Common $ 0.09 0.08 $ 0.27 0.23
Average Shares
Diluted 59,459 62,064 60,187 62,539
Basic 57,711 60,513 58,400 60,998
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 Nine Months
Ended January 31,
-----------------------------------
2006 2005
----------------- ----------------
Operating Activities
- --------------------
Net income $ 95,810 $ 79,134
Adjustments to reconcile net income to cash provided by (used for)
operating activities
Amortization of intangibles 9,990 7,675
Amortization of composition costs 26,688 25,590
Depreciation of property, equipment and technology 24,301 23,084
Non-cash charges & other 53,409 43,520
Non-cash tax benefits (14,252) -
Change in deferred subscription revenue 7,008 14,722
Net change in operating assets and liabilities, excluding acquisitions (35,550) (4,890)
----------------- ----------------
Cash Provided by Operating Activities 167,404 188,835
----------------- ----------------
Investing Activities
- --------------------
Additions to product development assets (52,156) (45,285)
Additions to property, equipment and technology (14,084) (17,948)
Acquisitions, net of cash acquired (29,055) (13,697)
Sales (Purchase) of marketable securities 10,000 (14,000)
----------------- ----------------
Cash Used for Investing Activities (85,295) (90,930)
----------------- ----------------
Financing Activities
- --------------------
Repayments of long-term debt (282,809) -
Borrowings of long-term debt 279,842 -
Purchase of treasury stock (82,549) (45,416)
Cash dividends (15,870) (13,687)
Proceeds from exercise of stock options and other 5,460 3,922
----------------- ----------------
Cash Used for Financing Activities (95,926) (55,181)
----------------- ----------------
Effects of Exchange Rate Changes on Cash (283) 1,090
----------------- ----------------
Cash and Cash Equivalents
Increase (Decrease) for Period (14,100) 43,814
Balance at Beginning of Period 89,401 82,027
----------------- ----------------
Balance at End of Period $ 75,301 $ 125,841
================= ================
Supplemental Information
Businesses/Rights Acquired:
Fair value of assets acquired $ 35,364 $ 13,697
Liabilities assumed (6,309) -
----------------- ----------------
Cash Paid for Businesses/Rights Acquired $ 29,055 $ 13,697
================= ================
Cash Paid During the Period for:
Interest $ 4,487 $ 3,725
Income taxes $ 24,814 $ 10,066
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
1. Basis of Presentation
---------------------
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
consolidated financial position of John Wiley & Sons, Inc., and
Subsidiaries (the "Company") as of January 31, 2006 and 2005, and results
of operations and cash flows for the three and nine month periods ended
January 31, 2006 and 2005. The results for the three months and nine months
ended January 31, 2006 are not necessarily indicative of the results
expected for the full year. 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, 2005.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
Certain prior-year amounts have been reclassified to conform to the current
year's presentation.
2. Recent Accounting Standards
---------------------------
In December 2004, the FASB issued Statement No. 123 (revised 2004) ("SFAS
123R") "Share-Based Payments." SFAS 123R will require the Company to
measure the cost of all employee stock-based compensation awards based on
the grant-date-fair-value and to record that cost as compensation expense
over the period during which the employee is required to perform service
under the terms of the award. The statement eliminates the alternative
method of accounting for the employee share-based payments previously
available under Accounting Principles Board Opinion No. 25. SFAS 123R will
be adopted by the Company in the first quarter of fiscal year 2007. The
Company currently discloses the pro forma effect of SFAS 123 in the notes
to these financial statements. The impact of SFAS 123R adoption has not yet
been quantified but is expected to approximate the pro forma effect as
disclosed in the notes to the financial statements.
3. 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 Statement of
Financial Accounting Standards (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.
Pro forma information under SFAS No. 123 and SFAS No. 148
- ---------------------------------------------------------
The per share value of options granted in connection with the Company's stock
option plans during the following periods are estimated using the Black Scholes
option pricing model with the following weighted average assumptions:
For the Three and Nine
Months Ending January 31,
----------------------------------------
2006 2005
----------------- -----------------
Expected life of options (years) 8.0 8.1
Risk-free interest rate 3.9% 4.5%
Volatility 27.1% 26.2%
Dividend yield 0.9% 0.9%
Per share fair value of options granted $13.61 $11.00
For purposes of the following pro forma disclosure, the fair value of the awards
was estimated at the date of grant using the Black Scholes option-pricing model
and amortized to expense over the options vesting periods.
For the Three Months For the Nine Months
Ending January 31, Ending January 31,
------------------------------------- ----------------------------------
(in thousands except per share amount) 2006 2005 2006 2005
----------------- --------------- -------------- ---------------
Net income as reported $40,949 $32,791 $95,810 $79,134
Stock-based compensation, net of tax, included
in the determination of net income as reported -
Restricted stock plans 653 962 2,483 2,481
Director stock plan 50 14 246 43
Stock-based compensation costs, net of tax, that would
have been included in the determination of net income
had the fair value-based method been applied (2,225) (2,295) (7,295) (6,550)
----------------- --------------- -------------- ---------------
Pro forma net income $39,427 $31,472 $91,244 $75,108
================= =============== ============== ===============
Reported earnings per share
Diluted $0.69 $0.53 $1.59 $1.27
Basic $0.71 $0.54 $1.64 $1.30
Pro forma earnings per share
Diluted $0.66 $0.51 $1.52 $1.20
Basic $0.68 $0.52 $1.56 $1.23
In accordance with current accounting requirements, the Company discloses pro
forma compensation expense reflecting stock options granted to all employees,
including near-retirement and retirement-eligible employees. The fair value of
these stock based awards are amortized to expense over the normal vesting
period. Upon the adoption of SFAS 123R, in the first quarter of fiscal year
2007, compensation expense will be recognized over the requisite service period
to achieve vesting for awards granted to retirement-eligible employees, which
may be shorter than the normal vesting period. If the Company had previously
been computing pro forma compensation expense over the shorter requisite service
period for stock options granted to retirement-eligible employees, the effect on
pro forma earnings per share, for all periods presented, would not have been
significant.
4. Comprehensive Income
--------------------
Comprehensive income was as follows (in thousands):
For the Three Months Ending For the Nine Months Ending
January 31, January 31,
------------------------------------ ----------------------------------
2006 2005 2006 2005
---------------- --------------- --------------- ---------------
Net income $40,949 $32,791 $95,810 $79,134
Change in other comprehensive income, net of taxes:
Foreign currency translation adjustment 1,618 4,161 (2,499) 9,625
---------------- --------------- --------------- ---------------
Comprehensive income $42,567 $36,952 $93,311 $88,759
================ =============== =============== ===============
A reconciliation of accumulated other comprehensive gain (loss) follows (in
thousands):
Three Months Ended January 31, 2006
-----------------------------------------------------
Beginning Change for Ending
Balance Period Balance
------------- --------------- --------------
Foreign currency translation adjustment $24,414 1,618 26,032
Minimum pension liability, net of tax (26,549) - (26,549)
------------- --------------- --------------
Total $(2,135) 1,618 (517)
============= =============== ==============
Nine Months Ended January 31, 2006
-------------------------------------------------------
Beginning Change for Ending
Balance Period Balance
------------- --------------- --------------
Foreign currency translation adjustment $28,531 (2,499) 26,032
Minimum pension liability, net of tax (26,549) - (26,549)
------------- --------------- --------------
Total $1,982 (2,499) (517)
============= =============== ==============
5. Weighted Average Shares for Earnings Per Share
---------------------------------------------
A reconciliation of the shares used in the computation of income per share
follows (in thousands):
For the Three Months Ending For the Nine Months Ending
January 31, January 31,
-------------------------------- -------------------------------
2006 2005 2006 2005
------------ -------------- ------------ --------------
Weighted average shares outstanding 58,057 60,819 58,719 61,285
Less: Unearned deferred compensation shares (346) (306) (319) (287)
------------- -------------- ------------ --------------
Shares used for basic income per share 57,711 60,513 58,400 60,998
Dilutive effect of stock options and other stock awards 1,748 1,551 1,787 1,541
------------- -------------- ------------ --------------
Shares used for diluted income per share 59,459 62,064 60,187 62,539
============= ============== ============ ==============
For the three months ended January 31, 2006 and 2005, options to purchase Class
A Common Stock of 1,005,000 and zero respectively, have been excluded from the
shares used for diluted income per share, as their inclusion would have been
anti-dilutive. For the nine months ended January 31, 2006 and 2005, 830,000 and
zero shares, respectively, have been excluded due to the anti-dilutive impact.
6. Inventories
-----------
As of
As of January 31, April 30,
----------------------------------- ---------------
2006 2005 2005
--------------- -------------- ---------------
Finished goods $75,054 $66,621 $72,931
Work-in-process 7,620 7,070 6,743
Paper, cloth and other 8,274 7,242 6,028
--------------- -------------- ---------------
90,948 80,933 85,702
LIFO reserve (2,630) (2,800) (2,330)
--------------- -------------- ---------------
Total inventories $88,318 $78,133 $83,372
=============== ============== ===============
7. Acquisitions
------------
Fiscal Year 2006:
During the first nine months of fiscal year 2006, the Company acquired
certain businesses, assets and rights for $29.1 million, including related
acquisition costs plus liabilities assumed. Approximately $25.1 million of
brands, trademarks and acquired publishing rights and $3.8 million of
goodwill were recorded in the aggregate. The aggregate effect of the
business acquisitions did not have a material impact on the Company's
results of operations. The brands, trademarks and acquired publishing
rights will be amortized over a weighted average period of approximately 10
years. The acquisitions consisted primarily of the following:
On May 31, 2005, Wiley acquired substantially all the assets of a global
publisher of computer books and software, specializing in IT business
certification materials. The acquisition cost has been primarily allocated
to branded trademarks and the net tangible assets acquired, which consisted
primarily of accounts receivable, inventory, accrued royalties, accounts
payable and other accrued liabilities. The branded trademarks are being
amortized over a 10-year period. The Company is in the process of
completing valuations necessary to finalize the purchase price allocation.
On July 11, 2005, the Company acquired the rights to a newsletter
publishing division of a leading publisher of mental health and addiction
information. The majority of the acquisition is recorded as acquired
publication rights and is amortized over a 10-year period.
On October 6, 2005, the Company acquired a leading provider of
evidence-based medicine content and web-based search tools. The acquisition
cost has been primarily allocated to goodwill, trademarks, customer
relationships and the net tangible assets acquired, which consisted
primarily of accounts receivable, capitalized software and deferred
subscription revenues. The trademarks and customer relationships are being
amortized over a 10-year period. The Company is in the process of
completing valuations necessary to finalize the purchase price allocation.
On November 7, 2005, the Company acquired the rights to the journal
Dialysis & Transplantation, a provider of nephrology and renal
transplantation information to nephrologists, surgeons, internists and
other physicians and healthcare professionals. The majority of the
acquisition is recorded as acquired publication rights and is being
amortized over a 10-year period.
Fiscal Year 2005:
During the first nine months of fiscal year 2005, the Company acquired
certain business assets and rights for $13.7 million, including related
acquisitions costs plus liabilities assumed. The acquisition consisted
primarily of the following:
In the first quarter of fiscal year 2005, the Company acquired the Journal
of Microscopy and Analysis, a controlled circulation journal, for
approximately $5.4 million, which is recorded as acquired publication
rights. The acquired publication rights are being amortized over a 15-year
period.
In the third quarter of fiscal year 2005, the Company acquired the rights
to the reference portfolio of the Macmillan Nature Publishing Group for
approximately $4.5 million. The acquired publication rights are being
amortized over a 10-year period.
8. 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
undergraduate and graduate students, 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 used to evaluate performance.
Segment information is as follows:
For The Three Months Ended January 31,
-------------------------------------------------------------------------------------
2006 2005
----------------------------------------- ----------------------------------------
(thousands)
Inter- Inter-
External segment External segment
Customers Sales Total Customers Sales Total
-------------- ------------- ------------ ------------- ----------- --------------
Revenue
-------
U.S. segments:
Professional/Trade $89,246 11,931 101,177 $81,848 10,000 91,848
Scientific, Technical, and Medical 46,847 3,078 49,925 40,995 2,238 43,233
Higher Education 38,402 7,954 46,356 38,242 6,952 45,194
European segment 64,383 8,487 72,870 60,789 5,655 66,444
Asia, Australia & Canada 39,311 445 39,756 36,554 372 36,926
Eliminations - (31,895) (31,895) - (25,217) (25,217)
-------------- ------------- ------------ ------------- ----------- --------------
Total Revenue $278,189 - 278,189 $258,428 - 258,428
-------------- ------------- ------------ ------------- ----------- --------------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $32,606 $30,938
Scientific, Technical, and Medical 20,839 18,635
Higher Education 14,935 15,220
European segment 22,506 20,339
Asia, Australia & Canada 12,261 12,251
------------ --------------
Total Direct Contribution to Profit 103,147 97,383
Shared Services and Administrative Costs
----------------------------------------
Distribution (11,960) (11,550)
Information technology (14,822) (12,777)
Finance (7,173) (9,119)
Other administrative (15,091) (13,512)
------------ --------------
Total Shared Services and Administrative Costs (49,046) (46,958)
------------ --------------
Operating Income $54,101 $50,425
---------------- ============ ==============
For The Nine Months Ended January 31,
------------------------------------------------------------------------------------
2006 2005
---------------------------------------- ----------------------------------------
(thousands)
External Inter-segment External Inter-segment
Customers Sales Total Customers Sales Total
-------------- ------------ ------------ ------------- ------------- -------------
Revenue
-------
U.S. segments:
Professional/Trade $243,535 31,101 274,636 $229,959 26,886 256,845
Scientific, Technical, and Medical 140,437 7,596 148,033 130,300 5,835 136,135
Higher Education 108,398 25,300 133,698 107,382 23,962 131,344
European segment 192,489 20,289 212,778 178,692 15,000 193,692
Asia, Australia & Canada 92,762 1,329 94,091 86,084 1,240 87,324
Eliminations - (85,615) (85,615) - (72,923) (72,923)
------------ ------------ ------------ ------------- ------------- -------------
Total Revenue $777,621 - 777,621 $732,417 - 732,417
------------- ------------ ------------ ------------- ------------- -------------
Direct Contribution to Profit
-----------------------------
U.S. segments:
Professional/Trade $77,009 $72,644
Scientific, Technical, and Medical 68,856 62,301
Higher Education 43,655 43,663
European segment 66,398 60,847
Asia, Australia & Canada 21,461 21,255
------------ -----------
Total Direct Contribution to Profit
277,379 260,710
Shared Services and Administrative Costs
----------------------------------------
Distribution (36,414) (35,308)
Information technology (45,063) (38,009)
Finance (22,782) (24,359)
Other administration (43,392) (41,708)
------------ -----------
Total Shared Services and Administrative Costs (147,651) (139,384)
------------ -----------
Operating Income $129,728 $121,326
---------------- ============ ===========
9. Intangible Assets
-----------------
Intangible assets consist of the following (in thousands):
As of January 31, As of
April 30,
----------------------------------- ---------------
2006 2005 2005
---------------- -------------- ---------------
Intangible assets not subject to amortization
Branded trademarks $57,900 $57,900 $57,900
Acquired publication rights 117,800 120,272 120,426
---------------- -------------- ---------------
Total intangible assets not subject to amortization 177,700 178,172 178,326
Net intangible assets subject to amortization, principally
acquired publication rights 128,841 107,165 112,715
---------------- -------------- ---------------
Total $304,541 $285,337 $291,041
================ ============== ===============
10. Marketable Securities
---------------------
During the third quarter of fiscal year 2005, the Company acquired
marketable securities for approximately $14.0 million. The marketable
securities consisted entirely of shares of variable rate securities issued
by closed-end funds that invest in a diversified portfolio of government
and corporate securities. Generally, these securities do not have a stated
maturity date and reset their dividends every 28 days. These securities
were accounted for as available-for-sale in accordance with SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities." During
the first quarter of fiscal year 2006, the Company sold its remaining
marketable securities for approximately $10.0 million. There were no
comparable investments at January 31, 2006.
11. Income Taxes
------------
The tax provision for the third quarter of fiscal year 2006 includes a tax
adjustment of $6.8 million, or $0.11 per diluted share, related to a
favorable resolution of certain matters with tax authorities.
The tax provision for the nine months ending January 31, 2006 also includes
$7.5 million, or $0.12 per diluted share, of tax benefits associated with
the reversal of a tax accrual recorded on the repatriation of dividends
from European subsidiaries in the fourth quarter of fiscal year 2005. On
May 10, 2005, the U.S. Internal Revenue Service issued Notice 2005-38. The
notice provided for a tax benefit that fully offset the tax accrued by the
Company on foreign dividends in the fourth quarter of fiscal year 2005.
Neither the current tax benefit associated with the $7.5 million tax
accrual reversal, nor the corresponding fourth quarter fiscal year 2005 tax
accrual had a cash impact on the Company.
Excluding the tax benefits described above, the effective tax rate for the
nine months ending January 31, 2006 increased to 33.4% as compared to 32.1%
for the nine months ending January 31, 2005, mainly due to lower U.S. and
foreign tax benefits.
12. Retirement Plans
----------------
The components of net pension expense for the defined benefit plans were as
follows:
For the Three Months For the Nine Months Ending
Ending January 31, January 31,
------------------------------- ----------------------------
(Dollars in thousands) 2006 2005 2006 2005
------------- -------------- ----------- ------------
Service Cost $2,642 $2,258 $8,245 $6,248
Interest Cost 2,889 2,523 8,707 7,896
Expected Return of Plan Assets (2,732) (2,145) (8,253) (6,679)
Net Amortization of Prior Service Cost 220 108 465 387
Recognized Net Actuarial Loss 748 519 2,394 1,457
------------- -------------- ----------- -------------
Net Pension Expense $3,767 $3,263 $11,558 $9,309
============= ============== =========== =============
Pension plan contributions were $4.8 million and $4.2 million for the
nine months ended January 31, 2006 and 2005, respectively.
13. Long-term Debt
--------------
On November 9, 2005, the Company entered into a new $300 million revolving
credit agreement with Bank of America as Administrative Agent and 14 other
lenders. The interest rate on the initial borrowings was equal to LIBOR
plus .37%. 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 .37% to .825%
depending on the coverage ratio of debt to EBITDA; or (ii) at the higher of
(a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in
effect for such day as publicly announced from time to time by Bank of
America as its prime rate; and (iii) LIBOR plus or minus an amount
determined through a competitive bidding process among the lenders. The
maximum amount outstanding at any time under option (iii) above cannot
exceed $25 million. In addition, the Company will pay a facility fee
ranging from .08% to .175% on the facility depending on the coverage ratio
of debt to EBITDA. The Company has the option to request an increase of up
to $100 million in the size of the facility in minimum amounts of $25
million. The credit agreement contains certain restrictive covenants
similar to those in the Company's former credit agreements related to an
interest coverage ratio, funded debt levels, and restricted payments,
including a limit on dividends paid and share repurchases. The credit
agreement will terminate on November 9, 2010. At January 31, 2006, $190
million was outstanding under this agreement.
Simultaneous with the execution of this agreement, the Company terminated
its previous credit agreement with UBS AG and paid in full the amounts
outstanding under that agreement. In connection with the early termination
of the credit agreement, $0.5 million of unamortized organization fees were
expensed in the third quarter of fiscal year 2006.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -
THIRD QUARTER ENDED JANUARY 31, 2006
Revenue for the third quarter of fiscal year 2006 of $278.2 million increased 8%
from $258.4 million in the prior year's third quarter. The third quarter revenue
increase was driven by year-on-year growth in the global Scientific, Technical
and Medical (STM) and Professional/Trade (P/T) businesses. U.S. Higher Education
revenue also increased compared with last year's third quarter.
Gross profit margin for the third quarter was 67.2% compared to 66.8% in the
prior year's quarter, primarily due to higher sales of global STM products.
Operating and administrative expenses increased 8% over last year's third
quarter, mainly due to investments in technology to deliver products to our
customers and increased selling, marketing and editorial costs to support
revenue growth, partially offset by lower professional fees associated with
Sarbanes-Oxley compliance.
Operating income advanced 7% to $54.1 million in the third quarter of fiscal
year 2006 primarily due to increased revenue. Operating margin for the third
quarter was 19.4% compared with 19.5% in the prior year. Interest expense
increased $1.5 million primarily due to higher borrowing rates and the one-time
write-off of unamortized debt financing costs associated with the termination of
the Company's previous credit agreement.
Excluding a favorable tax adjustment associated with the resolution of certain
matters with tax authorities, the effective tax rate for the third quarter of
fiscal year 2006 increased to 32.6% as compared to 32.3% in the third quarter of
fiscal year 2005. Including the tax adjustment, the reported third quarter
effective tax rate was 19.2%.
Earnings per diluted share and net income for the third quarter of fiscal year
2006 were $0.69 and $40.9 million, respectively. Excluding the favorable tax
adjustment further discussed below, adjusted earnings per diluted share and
adjusted net income for the third quarter of fiscal year 2006 rose 8% to $0.57
and 4% to $34.2 million, respectively.
Earnings per diluted share outpaced growth in net income due to the accretive
effect of treasury stock purchases. During the third quarter of fiscal year
2006, the Company repurchased approximately 708,400 million shares of common
stock at an average price of $39.04.
Non-GAAP Financial Measures: The Company's management evaluates operating
performance excluding unusual and/or nonrecurring events. The Company believes
excluding such events provides a more effective and comparable measure of
performance. Since adjusted net income and adjusted earnings per share are not a
measure calculated in accordance with GAAP, it should not be considered as a
substitute for other GAAP measures, including net income and earnings per share,
as reported, as an indicator of operating performance.
Adjusted net income and adjusted earnings per diluted share, which exclude the
tax benefit associated with the resolution of certain matters with tax
authorities, for the three months ended January 31, 2006 and 2005, are as
follows:
Reconciliation of non-GAAP financial disclosure
-----------------------------------------------
Net Income (in millions) 2006 2005
------------------------ -------------- --------------
As Reported $40,949 $32,791
Favorable resolution of tax matters (6,776) -
-------------- --------------
Adjusted $34,173 $32,791
============== ==============
Earnings per Diluted Share
--------------------------
As Reported $0.69 $0.53
Favorable resolution of tax matters (0.11) -
Adjusted $0.57 $0.53
============== =============
SEGMENT RESULTS
Professional/Trade (P/T)
- ------------------------
Wiley's U.S. P/T revenue of $101.2 million for the third quarter advanced 10%
over the prior year, bolstered by a solid holiday season and strong performances
of its business, technology, and architecture/engineering categories. P/T's
finance and leadership lists, as well as the Sybex technology titles it acquired
in May 2005, helped to deliver the positive results. The Sybex acquisition
contributed approximately $1.9 million to the revenue growth. Revenue from
licensing and website advertising, particularly Frommers.com, was very strong
during the quarter. Direct contribution margin declined 150 basis points to
32.2% for the quarter, principally due to product mix, specifically higher
inventory provisions and higher-cost imported titles.
A number of titles published during the quarter contributed to the performance.
Most notable was The Little Book That Beats the Market by Joel Greenblatt, which
published in November and was featured in The Wall Street Journal. This book has
earned a place on most of the major bestseller lists, alongside other Wiley
titles such as SuDoku For Dummies, Volumes I and 2 by Andrew Heron and Edmund
James; Empire of Debt: The Rise of an Epic Financial Crisis by William Bonner
and Addison Wiggin; J.K. Lasser's Income Tax 2006; Investing For Dummies by Eric
Tyson: and Five Dysfunctions of a Team by Patrick Lencioni. Lencioni's latest
book, Silos, Politics, and Turf Wars, was successfully released during the
quarter, as was Hedgehogging by Barton Biggs, the well known Morgan Stanley
investment management chairman turned hedge fund entrepreneur.
Several magazines and newspapers cited Wiley cookbooks in holiday
best-of-the-year round-ups, including Paula Wolfert's Cooking of Southwest
France (New York Times, National Public Radio); Lisa Yockelson's
ChocolateChocolate (New York Times, Boston Globe); Elizabeth Karmel's Taming the
Flame: Secrets for Hot-and-Quick Grilling and Low-and-Slow BBQ (Boston Globe,
Chicago Tribune); Leslie Revsin and Rick Rodgers' The Simpler the Better:
Sensational One Dish Meals (Boston Globe); Laxmi Hiremath's The Dance of Spices:
Classic Indian Cooking for Today's Home Kitchen (Boston Globe, Chicago Tribune);
and Cecilia Hae-Jin Lee's Eating Korean: From Barbecue to Kimchi, Recipes from
My Home (Boston Globe).
P/T is delivering its content to customers in a variety of new formats. Audio
downloads to facilitate study for the CPA exam were published in the quarter.
Four Web courses, which provide test banks and supplementary course material for
professors and students, were released in November.
In January, Wiley acquired the publishing assets of the Stock Trader's Almanac
from the Hirsch Organization. Since 2004, Wiley has been the co-publisher of
this unique and popular suite of print and online books, newsletters, and
analytical tools for the finance market, but will now have the opportunity to
extend the brand by developing new products.
Scientific, Technical, and Medical (STM)
- ----------------------------------------
Wiley's U.S. STM business continued to deliver excellent results in the third
quarter with revenue of $49.9 million up 15% over the previous year's comparable
period. Subscription and non-subscription journal revenue, from advertising,
commercial reprints, and journal backfiles contributed to these results. The
reference book program continued its strong performance, driven by title output
and global market strength. STM's direct contribution to profit increased 12%.
Direct contribution margin for the third quarter decreased 140 basis points to
41.7%, principally due to increased revenue from lower margin professional
society journals and planned increases in sales and marketing costs to drive
revenue growth.
The value of Wiley's journals to the research community was evident in the 26%
increase in the number of full-text accesses to the more than one million
journal articles available on the Company's online service, Wiley InterScience.
This significant gain was fueled by increased traffic from search engines and
the addition of backfile articles. The value of Wiley's content is also
reflected in the results of the ISI Impact Factor Analysis released in 2005, an
independent ranking that measures how often individual journal articles are
cited by researchers. Many of Wiley's journals, such as the Journal of
Biomedical Materials Research, Catheterization and Cardiovascular Intervention,
Neurology and Urodynamics, Head and Neck, and the American Journal of Physical
Anthropology, showed significant increases.
In November, STM acquired Dialysis and Transplantation, an advertising focused
publication that is the world's oldest peer reviewed journal for renal care,
catering to nephrologists, internists, surgeons, and other physicians in more
than 130 countries. Multi-year agreements were signed with the Crohn's and
Colitis Foundation of America to publish the journal, Inflammatory Bowel
Diseases, beginning in 2007, and the National Association of Research in Science
Teaching to continue publishing the Journal of Research in Science Teaching.
Soon after the close of the third quarter, STM signed a multi-year agreement
with The American Ceramic Society to publish 20-30 books and conference
proceedings. STM also renewed its book publishing agreement with the IEEE, the
premier professional organization for electrical and electronics engineers
around the world.
Higher Education
- -----------------
Revenue of Wiley's U.S. Higher Education business increased 3% during the third
quarter to $46.4 million, mainly driven by year-on-year growth in science and
mathematics. Higher Education's direct contribution to profit declined $0.3
million, reflecting higher marketing and sales costs, as planned.
WileyPLUS (formerly known as eGrade Plus) continued to gather momentum around
the world with significant adoptions in the U.S., Canada, Europe, and Asia, as
well as in non-traditional academic settings. Wiley PLUS delivers to students
and instructors an integrated suite of resources (including an online version of
the textbook), that is organized in one easy-to-use website around teaching and
learning activities. WileyPLUS allows instructors to customize course content,
create class presentations, assign homework and quizzes for automatic grading,
and track student progress. Revenue from the sale of WileyPlus is deferred and
recognized over the course of the semester. As of January 31, 2006 the Company
deferred approximately $1 million of WileyPLUS revenue which will be recognized
in the fourth quarter of fiscal year 2006.
Since it was first introduced in 2003, more than 250,000 students have purchased
WileyPLUS with their course materials. In a recent survey of students who used
WileyPLUS, 89% responded that it increased their understanding of the course
material and 69% said it helped them achieve a better grade. WileyPLUS was named
a finalist by the Software & Information Industry Association in its 21st Annual
CODiE Awards. WileyPLUS was named one of five finalists in the Education
Category for "Best Postsecondary Course or Content Management Solution."
During the third quarter, Higher Education signed a new agreement with the
National Geographic Society, extending Wiley's global partnership with the
Society, to create new products sold exclusively with Wiley textbooks and
WileyPLUS.
Europe
- ------
Wiley Europe's revenue increased 10% during the third quarter to $72.9 million,
or 16% excluding foreign currency effects. Higher revenue from STM journal and
book programs, as well as P/T products, specifically SuDoku For Dummies,
contributed to the improvement. Excluding foreign currency effects, the direct
contribution margin of 30.9% for the third quarter was on par with the prior
year third quarter, or up 30 basis points including foreign exchange effects.
The European market for STM products delivered through Wiley InterScience
remained strong. Sales of SuDoku For Dummies, Volumes I, 2, and 3 by Andrew
Heron and Edmund James continued at a phenomenal pace. In December, Kakuro For
Dummies by Andrew Heron published to similarly strong demand. Neuro-linguistic
Programming For Dummies and EBay.co.uk For Dummies were also top performers.
Eleven German-language For Dummies titles were published successfully during the
third quarter.
During the quarter, Wiley-VCH, which is based in Germany, announced a publishing
partnership with leading chemical societies in China, India, Korea and Germany
to publish a new journal, Chemistry - An Asian Journal. Nobel Laureate, Ryoji
Noyori will serve as Chairman of the Editorial Board. Complementing its sister
journals, Chemistry - A European Journal (published on behalf of the Editorial
Union of European Chemical Societies) and Angewandte Chemie (published on behalf
of the German Chemical Society), the new journal will provide a highly visible
arena for prominent researchers from around the world, especially from Asia.
Asia, Australia, and Canada
- ---------------------------
Wiley's revenue in Asia, Australia, and Canada increased by 8% to $39.8 million
during the third quarter. Contributing to theses results were revenue growth in
Wiley Australia's Higher Education business; strong sales in Asia, especially in
India, Japan and China; and improved sell-through of Higher Education products
and P/T sales in Canada. The segment's direct contribution to profit was flat in
comparison to the prior year. Higher revenue was offset by product mix and
higher selling and shipping costs.
At the close of the quarter, Wiley Asia completed the acquisition of the
outstanding shares of Wiley Dreamtech (India) Private Ltd. This acquisition is
an important step in the Company's plans to grow Wiley's presence in India,
extending its sales and marketing reach for all Wiley products in an important
and rapidly growing market. Wiley acquired a majority interest in Dreamtech in
2001 as part of its highly successful acquisition of Hungry Minds Inc., which
brought to the Company such well known brands as For Dummies, Frommer's, and
CliffsNotes, among others. Wiley has had a presence in India since 1965.
Shared Services and Administrative Costs
- ----------------------------------------
Shared services and administrative costs for the third quarter increased by 4%
to $49.0 million. The increase is primarily attributable to increases in
technology investments to deliver products to our customers and timing of
facility costs, partially offset by lower professional fees associated with
Sarbanes-Oxley compliance.
NINE MONTHS ENDED JANUARY 31, 2006
Revenue for the first nine months of fiscal year 2006 of $777.6 million
increased 6% from $732.4 million in the prior year. The revenue increase was
driven by year-on-year growth in the global STM business, with subscription
journals, non-subscription journal products, such as advertising, reprints and
backfiles, and books each contributing to these results. The U.S. P/T business
also contributed to the year-on-year growth with solid performances in
technology and business. Revenue from the Company's acquisition of Sybex
contributed approximately $6.6 million to the improvement.
Gross profit margin for the nine-month period was 67.3% compared to 66.4% in the
prior year. Improvements in STM product mix, principally higher journal
revenues, improvements in STM reference book margins and journal backfile sales
contributed to the improvement. Operating and administrative expenses increased
7% over the prior year. The increase primarily reflects investments in
technology to deliver products to our customers, increased marketing and
editorial costs to support revenue growth and higher facility costs, partially
offset by reduced professional costs associated with Sarbanes-Oxley compliance.
Operating income advanced 7% to $129.7 million in the first nine months of
fiscal year 2006. Revenue and product mix more than offset increases in
technology expenses to drive the year-on-year growth. Operating margin improved
to 16.7% from 16.6% in the prior year. Interest expense increased $2.9 million
primarily due to higher interest rates and a $0.5 million write-off of
unamortized debt costs in connection with the early termination of the credit
agreement.
Excluding the favorable tax adjustments described in the non-GAAP financial
disclosure below, the effective tax rate for the first nine months of fiscal
year 2006 increased to 33.4% as compared to 32.1% in the first nine months of
fiscal year 2005, mainly due to a reduction of U.S. and foreign income tax
benefits. Including the tax adjustments, the effective tax rate was 21.8%
Earnings per diluted share and net income for the first nine months of fiscal
year 2006 were $1.59 and $95.8 million. Excluding the tax adjustments further
described below, adjusted earnings per diluted share and adjusted net income for
the first nine months of fiscal year 2006 rose 7% to $1.36 and 3% to $81.6
million, respectively.
Earnings per diluted share growth outpaced growth in net income due to the
accretive effect of treasury stock purchases. During the first nine months of
fiscal year 2006, the Company repurchased approximately 2.1 million shares of
common stock at an average price of $39.40.
Non-GAAP Financial Measures: The Company's management evaluates operating
performance excluding unusual and/or nonrecurring events. The Company believes
excluding such events provides a more effective and comparable measure of
performance. Since adjusted net income and adjusted earnings per share are not
measures calculated in accordance with GAAP, they should not be considered as a
substitute for other GAAP measures, including net income and earnings per share
as indicators of operating performance.
Adjusted net income and adjusted earnings per diluted share, for the nine months
ended January 31, 2006 and 2005, excluding the tax benefits are as follows:
Reconciliation of non-GAAP financial disclosure
-----------------------------------------------
Net Income (in millions)
------------------------ 2006 2005
-------------- --------------
As reported $95,810 $79,134
Tax benefit on repatriated foreign dividends (7,476) -
Favorable resolution of tax matters (6,776) -
-------------- --------------
Adjusted $81,558 $79,134
============== ==============
Earnings per Diluted Share
--------------------------
As reported $1.59 $1.27
Tax benefit on repatriated foreign dividends (0.12) -
Favorable resolution of tax matters (0.11) -
Adjusted $1.36 $1.27
============== =============
The Adjusted Net Income and Adjusted Earnings per Diluted Share above exclude
tax benefits associated with the reversal of a tax accrual recorded on the
repatriation of dividends from European subsidiaries in the fourth quarter of
fiscal year 2005. On May 10, 2005 the US Internal Revenue Service issued Notice
2005-38. The notice provided for a tax benefit, which was recorded by the
Company in the first quarter of fiscal year 2006, that fully offset the tax
accrued by the Company on foreign dividends in the fourth quarter of fiscal year
2005. The current tax benefit and the corresponding fourth quarter tax accrual
in fiscal year 2005 had no cash impact on the Company.
The Adjusted Net Income and Adjusted Earnings per Diluted Share above also
exclude a favorable tax adjustment associated with the resolution of certain
matters with tax authorities.
SEGMENT RESULTS
Professional/Trade (P/T)
- ------------------------
Wiley's U.S. P/T revenue for the first nine months of fiscal year 2006 advanced
7% over the prior year. P/T's technology and business book programs contributed
to the growth. Revenue from the Company's recent acquisition of Sybex, a global
publisher of computer and software information technology titles, contributed
approximately $6.6 million to the revenue growth. Licensing of rights and higher
online advertising also had a positive effect on the results. Direct
contribution margin decreased by 24 basis points principally due to product mix.
Scientific, Technical, and Medical (STM)
- ----------------------------------------
Wiley's U.S. STM business recorded strong year-to-date results with revenue
growth of 9% over the prior year to $148.0 million. Subscription and
non-subscription journal revenue, such as journal backfiles, advertising, and
reprints, contributed to the year-on-year growth. The reference book program
continued to perform well against a strong performance last year. Direct
contribution margin for the first nine months of fiscal year 2006 improved by 75
basis points to 46.5%.
New and renewed Enhanced Access Licenses were signed by customers around the
world who continue to take advantage of Wiley InterScience's wide range of
access options, which is reflected in the continuing growth in usage. Full-text
accesses to Wiley InterScience during the first nine months of the fiscal year
increased 22.1% over the same period in the previous year.
Higher Education
- ----------------
Revenue of Wiley's U.S. Higher Education business increased 2% during the first
nine months of fiscal year 2006. The growth was driven by solid sales of science
and mathematics titles, partially offset by softness in social science and the
deferral of WileyPlus revenue to the fourth quarter. Revenue from the sale of
WileyPlus is deferred and recognized over the course of the semester.
Direct contribution to profit for the first nine months fiscal year 2006 was
$43.7 million, on par with the prior year. Higher revenue was offset by higher
planned sales and marketing costs and the deferral of WileyPlus revenue. Direct
contribution to profit increased 2%, excluding the impact of the deferral.
Europe
- ------
Wiley Europe's revenue for the first nine months of fiscal year 2006 was up 10%
over prior year, or 12% excluding foreign currency effects. Direct contribution
to profit increased 9% to $66.4 million, or 12% excluding foreign currency
effects. Revenue growth in STM and P/T drove the solid gains.
Asia, Australia, and Canada
- ---------------------------
Wiley's revenue in Asia, Australia, and Canada was up 8% during the first nine
months of fiscal year 2006, or 5% excluding foreign currency effects. STM
reference books and P/T growth in Asia and Higher Education in Australia drove
the improvement. Excluding foreign currency effects, direct contribution to
profit for the nine-month period declined approximately 6% to $21.5 million,
mainly due to product mix and higher selling and shipping costs.
Shared Services and Administrative Costs
- ----------------------------------------
Shared services and administrative costs for the first nine months of fiscal
year 2006 increased 6% to $147.7 million. The increase is primarily attributable
to planned increases in technology investments to deliver products to our
customers, such as Wiley InterScience and WileyPlus, and increased facility
costs, partially offset by reduced professional fees associated with
Sarbanes-Oxley compliance.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in fiscal year 2006 was $167.4 million
compared with $188.8 million in the prior year. Higher cash from operations and
deferred subscription cash receipts were more than offset by cash used for
operating assets and liabilities. The increase in cash used for operating assets
and liabilities was mainly the result of higher inventory purchases and higher
income tax payments along with a prior year tax refund. Also contributing to the
cash use were increased accounts receivable mainly due to higher book sales in
the current period. The higher inventory purchases are from the reduced levels
achieved in the prior year under inventory management programs as well as new
current year editions.
Cash used for investing activities for the first nine months of fiscal year 2006
was $85.3 million compared to $90.9 million in the prior year. The Company
invested $29.1 million in acquisitions of publishing assets and rights compared
to $13.7 million in the prior year. Increased cash used for investments in
product development were partly offset by lower spending on property, equipment
and technology. The Company sold $10 million of marketable securities during the
current year consisting of shares of variable rate securities issued by
closed-end funds and acquired $14 million of these securities in the prior year
period. Projected product development and property, equipment and technology
capital spending for fiscal year 2006 is forecast to be approximately $70
million and $25 million, respectively.
Cash used for financing activities was $95.9 million in the first nine months of
fiscal 2006, as compared to $55.2 million in the prior period. Cash was used to
purchase treasury stock, repay debt and pay dividends to shareholders.
On November 9, 2005, John Wiley and Sons, Inc. entered into a new $300 million
revolving credit agreement with Bank of America as Administrative Agent and 14
other lenders. The interest rate on the initial borrowings was equal to LIBOR
plus .37%. 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 .37% to .825% depending on the coverage
ratio of debt to EBITDA; or (ii) at the higher of (a) the Federal Funds Rate
plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly
announced from time to time by Bank of America as its prime rate; and (iii)
LIBOR plus or minus an amount determined through a competitive bidding process
among the lenders. The maximum amount outstanding at any time under option (iii)
above cannot exceed $25 million. In addition, the Company will pay a facility
fee ranging from .08% to .175% on the facility depending on the coverage ratio
of debt to EBITDA. The Company has the option to request an increase of up to
$100 million in the size of the facility in minimum amounts of $25 million. The
credit agreement contains certain restrictive covenants similar to those in the
Company's prior credit agreements related to an interest coverage ratio, funded
debt levels, and restricted payments, including a limit on dividends paid and
share repurchases. The credit agreement will terminate on November 9, 2010. As
of January 31, 2006, $190.0 million was outstanding under the new agreement.
Simultaneous with the execution of this agreement, the Company terminated its
previous credit agreement with UBS AG and paid in full the amounts outstanding
under that agreement by utilizing funds from the new facility. In connection
with the early termination of the credit agreement the Company wrote-off $0.5
million of unamortized organization fees in the third quarter. The final payment
on the previous variable rate term loan was due September 2006.
Borrowings this period, including those under the new credit agreement were
$279.8 million while payments, including the paydown of the prior revolving
credit and term loan facility were $282.8 million. Included in this activity is
$50.0 million of borrowings under its former revolving credit facility to repay
$50.0 million of the former outstanding term loan facility in advance of the
scheduled due date.
During the third quarter of fiscal year 2006 the Company purchased the following
Common Stock under its stock repurchase program. The current program approved by
the Company's Board of Directors in June of 2005 authorizes management to
purchase up to four million additional common shares.
Number of Shares Average Price Maximum Shares Yet to be
Month Purchased Paid Per Share Purchased Under the Repurchase Plan
- ----------------- -------------------------------- --------------- ----------------------------------------
November 319,200 $38.97 3,192,130
December 61,100 $39.56 3,131,030
January 328,100 $39.01 2,802,930
-------
Total 708,400 $39.04
During the first nine months of fiscal year 2006, the Company purchased
2,095,270 shares under its stock repurchase program at an average price of
$39.40 per share. The Company increased its quarterly dividend to shareholders
by 20% to $0.090 per share versus $0.075 per share in the prior year. The
Company believes its cash balances together with existing credit facilities are
sufficient to meet its obligations. At January 31, 2006 the Company had $190.0
million of variable rate loans outstanding and approximately $231.9 million of
unused borrowing capacity available under its revolving credit facilities and
other short-term lines of credit.
"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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 instruments 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
investments for trading or speculative purposes.
year 2006.
Interest Rates
The Company had $190.0 million of variable rate loans outstanding at January 31,
2006, which approximated fair value. The Company did not use any derivative
financial investments to manage this exposure. The weighted average interest
rate as of January 31, 2006 was approximately 4.83%. A hypothetical 1% change in
interest rates for the variable rate debt would affect annual net income and
cash flow by approximately $1.3 million.
Sales Return Reserves
Sales return reserves, net of estimated inventory and royalty costs, are
reported as a reduction of accounts receivable in the Condensed Consolidated
Statement of Financial Position and amounted to $66.1 million and $56.7 million
at January 31, 2006 and April 30, 2005, respectively. On an annual basis, a one
percent change in the estimated sales return rate could affect net income by
approximately $3.0 million. A change in the pattern of trends in returns could
affect the estimated allowance.
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 enters into derivative financial instruments
in the form of forward contracts as a hedge against foreign currency fluctuation
of specific transactions, including inter-company purchases.
Customer 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 5% of total consolidated revenue, the top 10 book customers
account for approximately 25% of total consolidated revenue and approximately
47% of total gross trade accounts receivable at April 30, 2005.
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 23% of total consolidated revenue and no one agent
accounts for more than 6% of total consolidated revenue for the fiscal year
ended April 30, 2005. Insurance for these accounts is not commercially feasible
and/or available.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed or submitted under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified by the Securities and Exchange
Commission's rules and regulations. The Company's Chief Executive Officer and
Chief Financial Officer, together with the Chief Accounting Officer and other
members of the Company's management, have conducted an evaluation of these
disclosure controls and procedures as of a date within 90 days prior to the date
of filing this report. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect such
internal controls subsequent to this evaluation.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 - 18 U.S.C. Section 1350 Certificate by the President and Chief
Executive Officer
99.2 - 18 U.S.C. Section 1350 Certificate by the Chief Financial and
Operations Officer
10.1 - $300,000,000 Credit Agreement dated November 9, 2005 (filed as
an exhibit to the Company's report Second Quarter Form 10-Q).
(b) The following reports on Form 8-K were furnished to the Securities and
Exchange Commission since the filing of the Company's 10-Q on December
9, 2005.
i. Earnings release on the third quarter fiscal 2006 results issued
on Form 8-K dated March 6, 2006 which include the condensed
financial statements of the Company.
The following reports on Form 8-K were filed with the Securities and
Exchange Commission since the filing of the Company's 10-Q on
December 9, 2005.
i. Deferred Compensation Plans issued on Form 8-K dated December 21,
2005.
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/ Ellis E. Cousens
------------------------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
By /s/ Edward J. Melando
------------------------------------
Edward J. Melando
Vice President, Controller and
Chief Accounting Officer
Dated: March 9, 2006
CERTIFICATIONS PERSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
------------------------------------------------------------------------
I, William J. Pesce, certify that:
I have reviewed this quarterly report on Form 10-Q of John Wiley & Sons, Inc.:
- Based on my knowledge, this quarterly 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 quarterly report; and
- Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the Company and we have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report, based on such evaluation; and
d. Disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting.
- The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the
board of directors:
a. all significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting that are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report
financial information; 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.
By /s/ William J. Pesce
-----------------------
William J. Pesce
President and
Chief Executive Officer
Dated: March 9, 2006
I, Ellis E. Cousens, certify that:
I have reviewed this quarterly report on Form 10-Q of John Wiley & Sons, Inc.;
- Based on my knowledge, this quarterly 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 quarterly report; and
- Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the Company and we have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report, based on such evaluation; and
d. Disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting.
- The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the
board of directors:
a. all significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
that are reasonably likely to adversely affect the Company's
ability to record, process, summarize and report financial
information; 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.
By /s/ Ellis E. Cousens
------------------------------------
Ellis E. Cousens
Executive Vice President and
Chief Financial & Operations Officer
Dated: March 9, 2006
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of John Wiley & Sons, Inc. (the
"Company") on Form 10-Q for the period ending January 31, 2006 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:
(1) 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
(2) 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: March 9, 2006
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 Quarterly Report of John Wiley & Sons, Inc. (the
"Company") on Form 10-Q for the period ending January 31, 2006 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:
(1) 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
(2) 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: March 9, 2006