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, 1997 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, including area code
(212) 850-6000
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 [ ]
The number of shares outstanding of each of the Registrant's classes of common
stock as of January 31, 1997 were:
Class A, par value $1.00 - 12,699,140
Class B, par value $1.00 - 3,188,258
This is the first 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 January 31, 1997 and 1996; and April 30, 1996...3
Condensed Consolidated Statements of Income - Unaudited for the Nine
Months ended January 31, 1997 and 1996...4
Condensed Consolidated Statements of Cash Flow - Unaudited for the Nine
Months ended January 31, 1997 and 1996...5
Notes to Unaudited Condensed Consolidated Financial
Statements....................................................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................9-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................11
SIGNATURES....................................................12
EXHIBITS
27 Financial Data Schedule
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
January 31, April 30,
1997 1996 1996
---- ---- ----
Assets
Current Assets
Cash and cash equivalents $ 92,060 66,235 55,284
Accounts receivable 78,925 73,515 60,276
Inventories 56,397 46,968 43,981
Deferred income tax benefits 7,680 8,672 7,677
Prepaid expenses 4,202 2,948 3,413
Total Current Assets 239,264 198,338 170,631
Product Development Assets 31,258 28,781 30,282
Property and Equipment 31,347 21,177 22,989
Intangible Assets 164,479 51,024 52,394
Deferred income tax benefits 13,533 - -
Other Assets 15,296 8,098 8,205
Total Assets $ 495,177 307,418 284,501
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable and current portion of $ 998 1,477 -
Accounts and royalties payable 51,395 46,046 36,952
Deferred subscription revenues 111,045 86,684 71,999
Accrued income taxes 6,611 9,690 5,068
Other accrued liabilities 37,242 24,178 25,097
Total Current Liabilities 207,291 168,075 139,116
Long-Term Debt 125,000 - -
Other Long-Term Liabilities 25,231 14,749 14,994
Deferred Income Taxes 13,772 9,519 12,409
Shareholders' Equity 123,883 115,075 117,982
Total Liabilities & Share$ 495,177 307,418 284,501
The accompanying Notes are an integral part of the condensed
consolidated financial statements.
JOHN WILEY & SON, 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,
1997 1996 1997 1996
---- ---- ---- ----
Revenues $ 118,105 97,409 324,392 272,332
Costs and Expenses
Cost of sales 42,762 35,838 113,934 94,039
Operating and administrative ex 61,215 49,728 173,715 145,615
Amortization of intangibles 2,215 1,133 5,925 3,353
Total Costs and Expenses 106,192 86,699 293,574 243,007
Operating Income 11,913 10,710 30,818 29,325
Interest Income and Other 491 4,838 835 5,369
Interest Expense (1,878) (127) (4,372) (343)
Interest Income (Expense) - Net (1,387) 4,711 (3,537) 5,026
Income Before Taxes 10,526 15,421 27,281 34,351
Provision For Income Taxes 3,795 5,586 9,827 13,158
Net Income $ 6,731 9,835 17,454 21,193
Net Income Per Share
Primary $ 0.41 0.59 1.06 1.28
Fully Diluted $ 0.41 0.59 1.06 1.28
Cash Dividends Per Share
Class A Common $ 0.1000 0.0875 0.3000 0.2625
Class B Common $ 0.0875 0.0775 0.2625 0.2325
Average Shares
Primary 16,294 16,604 16,430 16,542
Fully Diluted 16,340 16,616 16,450 16,576
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)
Nine Months
Ended January 31,
1997 1996
---- ----
Operating Activities
Net income $17,454 21,193
Non-cash items 36,019 38,493
Net change in operating assets and liabilities 9,624 3,892
Cash Provided by Operating Activities 63,097 63,578
Investing Activities
Additions to product development assets (18,490) (19,231)
Additions to property and equipment (6,248) (5,658)
Acquisition of publishing assets (103,331) (1,975)
Cash Used for Investing Activities (128,069) (26,864)
Financing Activities
Purchase of treasury shares (10,393) (2,292)
Additions to long-term debt 125,000 0
Repayment of acquired debt (10,542) 0
Net borrowings of short-term debt 1,035 847
Cash dividends (4,685) (4,125)
Proceeds from exercise of stock options 903 1,112
Cash Provided by (Used in) 101,318 (4,458)
Financing Activities
Effects of Exchange Rate Changes on Cash 430 -431
Cash and Cash Equivalents
Increase for Period 36,776 31,825
Balance at Beginning of Period 55,284 34,410
Balance at End of Period $92,060 66,235
Cash Paid During the Period for
Interest $3,193 487
Income taxes (refund) $4,472 (2,468)
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
JANUARY 31, 1997
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 January 31, 1997 and 1996, and April
30, 1996, and results of operations and cash flows for the periods ended
January 31, 1997 and 1996. 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, 1996.
2. The results for the nine months ended January 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
3. Income per share is determined by dividing income by the weighted average
number of common shares outstanding and common stock equivalents resulting
from the assumed exercise of outstanding dilutive stock options and other
stock awards, less shares assumed to be repurchased with the related proceeds
at the average market price for the period for primary earnings per share,
and at the higher of the average or end of period market price for fully
diluted earnings per share.
4. Inventories were as follows:
January 31, April 30,
------------------------------ ------------
1997 1996 1996
------------ ------------ ------------
(Thousands)
Finished goods $47,562 39,664 39,616
Work-in-process 8,483 5,457 4,865
Paper, cloth and 4,372 6,210 3,026
other
------------ ------------ ------------
60,417 51,331 47,507
LIFO reserve ( 4,020) (4,363) (3,526)
------------ ------------ ------------
Total inventories $56,397 46,968 43,981
------------ ------------ ------------
Approximately $9.5 million of the increase in inventories at January 31, 1997
relates to the acquisition of VCH.
5. In June 1996, the Company completed the acquisition of a 90% interest in the
German based VCH Publishing Group (VCH) through the purchase of 90% of the
shares of VCH Verlagsgesellschaft mbH for approximately $99 million in cash,
including estimated expenses. VCH is a leading scientific, technical, and
professional publisher of journals and books in such disciplines as
chemistry, architecture, civil engineering and law.
In July 1996, the Company acquired the publishing assets of Technical
Insights, Inc., a publisher of print and electronic newsletters in various
areas of science and technology for approximately $3.8 million in cash.
These transactions were financed as described in note 6. The acquisitions
have been accounted for by the purchase method, and the accompanying
financial statements include the net assets acquired and results of
operations since date of acquisition. The cost of the acquisitions has been
allocated on the basis of preliminary estimates of the fair values of the
assets acquired and the liabilities assumed. Final asset and liability fair
values may differ based on appraisals and tax bases, however it is
anticipated that any changes will not have a material effect in the aggregate
on the consolidated financial position of the Company. The excess of cost
over the preliminary estimate of the fair value of the tangible assets
acquired amounted to approximately $120 million relating to acquired
publication rights, noncompete agreements, goodwill and other intangibles and
is being amortized on a straight line basis over an estimated average life of
30 years.
The following pro forma information presents the results of operations of
the Company as if the VCH acquisition had been consummated as of May 1, 1995.
The pro forma effects for Technical Insights were not material. The pro forma
financial information is not necessarily indicative of the actual results
that would have been obtained had the acquisition been consummated as of May
1, 1995, nor is it necessarily indicative of future results of operations.
Nine Months
Ended January 31,
----------------------------------------
----------
1997 1996
--------------- ---------------
(In thousands, except per share
information)
Revenues 324,392 $ 320,927
$
Net Income 16,045 $ 15,546
$
Net Income 0.98 $ 0.94
Per Share $
6. In November 1996, the Company entered into a seven year $175 million credit
agreement expiring on October 31, 2003 with nine banks to obtain permanent
financing for the VCH acquisition and to replace its existing $50 million
revolving credit facility. The new credit agreement consists of a term loan
of $125 million and a new $50 million revolving credit facility. The Company
has the option of borrowing at the following floating interest rates: (i)
Eurodollars at a rate based on the London Interbank Offered Rate (LIBOR) plus
an applicable margin ranging from .15% to .30% depending on certain coverage
ratios or (ii) dollars at a rate based on the current certificate of deposit
rate, plus an applicable margin ranging from .275% to .425% depending on
certain coverage ratios or (iii) dollars at the higher of (a) the Federal
Funds Rate plus .5% and (b) the banks' prime rate. In addition, the Company
pays a facility fee ranging from .10% to .20% on the total facility depending
on certain coverage ratios.
In the event of a change of control, as defined, the banks have the
option to terminate the agreement and require repayment of any amounts
outstanding. Amounts outstanding under the term loan have mandatory
repayments of 24% of such amount on October 31, 2000, 2001 and 2002,
respectively, and 28% on October 31, 2003.
The new credit agreement contains certain restrictive covenants related to
minimum net worth, funded debt levels, an interest coverage ratio and
restricted payments, including a cumulative limitation for dividends paid and
share repurchases. Under the most restrictive covenant, approximately $ 49.7
million was available for the payment of future dividends as of January 31,
1997.
7. Effective May 1, 1996, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of". This standard establishes the accounting for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used, and for long-lived
assets and certain identifiable intangibles to be disposed of. The adoption
of this standard did not have a material effect on the consolidated financial
statements of the Company.
Effective May 1, 1996, the Company adopted the Financial Accounting
Standards Board's SFAS No. 123. "Accounting for Stock-Based Compensation"
("SFAS 123"). This standard established accounting and reporting standards
for stock-based employee compensation. The Company will continue to measure
compensation costs for its stock-based compensation plans using the intrinsic
value-based method, and will include certain pro forma disclosures required
by SFAS 123 in its audited financial statements for the fiscal year ended
April 30, 1997. The adoption of this standard did not have a material effect
on the consolidated financial statements of the Company.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JANUARY 31, 1997
FINANCIAL CONDITION
Operating activities for the first nine months of fiscal 1997 provided $63.1
million of cash compared with $63.6 million in the prior year. The generation
of cash during this period is consistent with the seasonality of the journal
receipts cycle which occurs, for the most part, in the third quarter of the
fiscal year.
Investing activities used $128.1 million during the current period, or $101.2
million more than the comparable prior year's period, primarily due to the
VCH and Technical Insights acquisitions as mentioned in note 5 to the
financial statements.
Financing activities primarily reflect the financing for the above
acquisitions, as well as dividend payments and purchases of treasury shares
during the period. In November 1996, the Company entered into a new $175
million credit agreement to obtain permanent financing for the VCH
acquisition and to replace its existing $50 million revolving credit
facility, as more fully described in note 6 to the financial statements.
RESULTS OF OPERATIONS
THIRD QUARTER ENDED JANUARY 31, 1997
Revenues for the third quarter advanced 21% to $118.1 million compared with
$97.4 million in the prior year. Operating income for the current quarter was
$11.9 million compared with $10.7 million in the prior year. Net income
declined from $9.8 million in the prior year to $6.7 million. The current
quarter includes the results of operations of VCH Publishing Group which was
acquired in June 1996, and which had the effect of increasing revenues by
approximately 16%, and reducing operating income by $0.2 million and net
income by $1.3 million, or $0.08 per share, primarily due to amortization of
intangibles and financing costs related to the acquisition. The prior year's
third quarter net income included a special income item of $2.6 million after
taxes, equal to $0.16 per share, relating to interest received on the
favorable resolution of amended tax return claims.
Excluding VCH, the improvement in revenues and operating income was primarily
attributable to strong performances in the Company's scientific, technical
and medical journals program and in its college division. International
operations continued to produce healthy revenue gains.
Cost of sales as a percentage of revenues decreased from 36.8% in the prior
year to 36.2%. Operating expenses as a percentage of revenues were 51.8% in
the current quarter compared with 51.1% in the prior year's third quarter.
Interest expense increased by $1.8 million due to the financing costs related
to the VCH acquisition. Interest income declined by $4.3 million primarily
due to the interest received in the prior year's third quarter on the
favorable resolution of amended tax return claims. The effective tax rate was
approximately 36% for both quarters.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 31, 1997
Revenues for the first nine months of fiscal 1997 were $324.4 million, or 19%
ahead of the $272.3 million in the comparable prior year period. Operating
income was $30.8 million, or $1.5 million ahead of the prior year period. Net
income of $17.5 million for the current year period declined by $3.7 million
from the prior year. The current year period includes the results of VCH
Publishing Group since date of acquisition in June 1996, which had the effect
of increasing revenues by approximately 13%, and reducing operating income by
$1.1 million and net income by $3.5 million, or $0.21 per share, primarily
due to amortization of intangibles and financing cost related to the
acquisition. The prior year period included the special income item of $2.6
million after taxes, equal to $0.16 per share, relating to interest received
on the favorable resolution of amended tax return claims.
Excluding VCH, the improvements in revenues and operating income for the
period are attributable to the same factors noted in the results of
operations for the third quarter. Similar to the experience of other
companies in the trade publishing markets, the domestic professional/trade
division posted lower revenues and operating income reflecting a change by a
small number of large wholesalers and retailers to just-in-time inventory
management policies, which also resulted in higher returns.
For the year-to-date, costs of sales as a percentage of revenues increased
from 34.5% to 35.1%, and operating expenses were 53.6% of revenues compared
with 53.5% in the prior year period.
Interest expense increased by $4.0 million due to the financing costs related
to the VCH acquisition. Interest income declined $4.5 million primarily for
the reason noted above. The effective tax rate of 36% in the current period
reflects a reduction of 2% from the prior year due in large part to the tax
benefits of VCH's acquisition related amortization and financing costs.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------
(a) Exhibits
------
27 - Financial Data Schedule
(b) Reports on Form 8-K
----------------
No reports on Form 8-K were filed during the quarter ended January
31, 1997.
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/ Charles R. Ellis
--------------
Charles R. Ellis
President and
Chief Executive Officer
By/s/ Robert D. Wilder
--------------
Robert D. Wilder
Executive Vice President
and
Chief Financial Officer
Dated: March 7, 1997