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 July 31, 1999 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 July 31, 1999 were:
Class A, par value $1.00 - 49,818,393
Class B, par value $1.00 - 12,133,956
This is the first page of a fourteen 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 July 31, 1999 and 1998 and April 30, 1999........................3
Condensed Consolidated Statements of Income - Unaudited
for the Three Months ended July 31, 1999 and 1998..................... 4
Condensed Consolidated Statements of Cash Flow - Unaudited
for the Three Months ended July 31, 1999 and 1998 ................... 5
Notes to Unaudited Condensed Consolidated Financial Statements .........6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................9-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................13
"Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995......................13
SIGNATURES.................................................................14
EXHIBITS
27 Financial Data Schedule
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
(UNAUDITED)
July 31, April 30,
----------------
Assets 1999 1998 1999
---- ---- ---------
Current Assets
Cash and cash equivalents $ 4,173 94,821 148,970
Accounts receivable 77,680 72,929 53,785
Inventories 39,606 43,835 40,003
Deferred income tax benefits 3,851 477 3,865
Prepaid expenses 8,976 8,071 9,347
------- ------- --------
Total Current Assets 134,286 220,133 255,970
Product Development Assets 40,655 34,992 38,099
Property and Equipment 34,364 33,491 34,726
Intangible Assets 308,890 180,051 174,911
Deferred income tax benefits 12,067 15,597 13,001
Other Assets 11,810 10,811 11,845
------- ------- --------
Total Assets $ 542,072 495,075 528,552
======= ======= ========
Liabilities & Shareholders' Equity
Current Liabilities
Notes payable $ 26,000 - -
Accounts and royalties payable 54,476 48,918 34,708
Deferred subscription revenues 72,851 66,838 110,143
Accrued income taxes 8,113 8,709 3,356
Other accrued liabilities 41,423 35,560 46,893
------- ------- -------
Total Current Liabilities 202,863 160,025 195,100
Long-Term Debt 125,000 125,000 125,000
Other Long-Term Liabilities 31,502 27,074 30,271
Deferred Income Taxes 15,860 16,073 15,969
Shareholders' Equity 166,847 166,903 162,212
------- ------- --------
Total Liabilities & Shareholders' $ 542,072 495,075 528,552
Equity ======= ======= ========
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
Ended July 31,
------------------------------
1999 1998
-------------- -------------
Revenues $ 136,980 122,091
Costs and Expenses
Cost of sales 47,542 42,367
Operating and administrative expenses 63,740 60,374
Amortization of intangibles 3,129 2,284
----------- ------------
Total Costs and Expenses 114,411 105,025
----------- ------------
Operating Income 22,569 17,066
Interest Income and Other 624 1,422
Interest Expense (1,833) (1,982)
------------ ------------
Interest Income (Expense) - Net (1,209) (560)
------------ ------------
Income Before Taxes 21,360 16,506
Provision For Income Taxes 8,010 5,942
------------ ------------
Net Income $ 13,350 10,564
============ ============
Income Per Share
Diluted $ 0.20 0.16
Basic $ 0.22 0.17
Cash Dividends Per Share
Class A Common $ 0.035625 0.031875
Class B Common $ 0.031875 0.028125
Average Shares
Diluted 65,281 66,437
Basic 61,812 63,237
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)
Three Months
Ended July 31,
--------------------------
1999 1998
----------- ----------
Operating Activities
Net income $ 13,350 10,564
Non-cash items 21,822 18,786
Net change in operating assets and liabilities (51,499) (41,351)
----------- ----------
Cash Used In Operating Activities (16,327) (12,001)
----------- ----------
Investing Activities
Additions to product development assets (6,201) (5,919)
Additions to property and equipment (1,371) (2,142)
Acquisition of publishing assets (139,327) (8,396)
---------- ----------
Cash Used in Investing Activities (146,899) (16,457)
---------- ----------
Financing Activities
Purchase of treasury shares (6,983) (2,285)
Net borrowings of short-term debt 26,000 -
Cash dividends (2,168) (1,988)
Proceeds from exercise of stock options 401 419
--------- ----------
Cash Provided by (Used for) Financing Activities 17,250 (3,854)
--------- ----------
Effects of Exchange Rate Changes on Cash 1,179 (272)
--------- ----------
Cash and Cash Equivalents
Decrease for Period (144,797) (32,584)
Balance at Beginning of Period 148,970 127,405
--------- ---------
Balance at End of Period $ 4,173 94,821
========= =========
Cash Paid During the Period for
Interest $ 1,668 1,960
Income taxes $ 3,501 5,192
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. 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 July 31, 1999 and 1998, and April 30,
1999, and results of operations and cash flows for the periods ended July
31, 1999 and 1998. 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, 1999.
2. The results for the three months ended July 31, 1999 are not necessarily
indicative of the results to be expected for the full year.
3. A reconciliation of the shares used in the computation of income per share
follows:
Three Months
Ended July 31
------------------
1999 1998
------- -------
(thousands)
Weighted average shares outstanding 62,331 63,998
Less: Unearned deferred compensation shares (519) (761)
------- --------
Shares used for basic income per share 61,812 63,237
Dilutive effect of stock options and other stock awards 3,469 3,200
------- --------
Shares used for diluted income per share 65,281 66,437
------- --------
4. Inventories were as follows:
July 31, April 30,
----------------------
1999 1998 1999
---------- ---------- ----------
(thousands)
Finished goods $34,873 $35,748 $34,485
Work-in-process 3,128 6,236 5,325
Paper, cloth and other 3,519 4,026 2,007
--------- -------- -------
41,520 46,010 41,817
LIFO reserve (1,914) (2,175) (1,814)
--------- -------- --------
Total inventories $39,606 $43,835 $40,003
--------- -------- --------
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Comprehensive income was as follows:
Three Months
Ended July 31,
--------------------------------
1999 1998
-------------- --------------
(thousands)
Net Income $ 13,350 $ 10,564
Other Comprehensive
Income (Loss) - Foreign
Currency Translation
Adjustments 56 (1,330)
----------- ------------
Comprehensive Income $ 13,406 $ 9,234
----------- ------------
6. In the first quarter of fiscal year 2000, the Company acquired certain
higher education titles for approximately $58 million in cash, and the
Jossey-Bass publishing company for approximately $82 million in cash,
from Pearson Inc. The acquisitions were financed by available cash balances
and short-term lines of credit. The higher education titles include
such disciplines as biology/anatomy and physiology, engineering,
mathematics, economics/finance and teacher education. Jossey-Bass
publishes books and journals for professionals and executives in such
areas as business, psychology and educational/health management. 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 the dates 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
$138 million, relating primarily to acquired publication rights and
goodwill, and is being amortized on a straight line basis over estimated
average lives ranging from 10 to 20 years.
7. In the first quarter of fiscal year 2000, the Company adopted Statement of
Position ("SOP") 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" issued by the American Institute of
Certified Public Accounts. SOP 98-1 requires that certain costs incurred in
developing or obtaining internal use software be capitalized and amortized
over the useful life of the software. Previously, the Company expensed most
of these costs as incurred. The adoption of SOP 98-1 had the effect of
increasing net income in the first quarter of fiscal year 2000 by
approximately $400,000.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Segment information was as follows:
Three Months Ended July 31,
--------------------------------------------------
1999 1998
------------------------- ----------------------
(thousands)
Inter- Inter-
External segment External segment
Revenues Customers Sales Total Customers Sales Total
-------------------------- -------------------------
Domestic Segments:
Scientific, Tech, & Med. $33,454 1,622 35,076 $30,517 1,365 31,882
Professional/Trade 26,249 3,122 29,371 19,972 2,688 22,660
College 30,532 4,880 35,412 28,079 4,128 32,207
European Segment 31,635 2,692 34,327 30,365 2,784 33,149
Other Segments 15,110 103 15,213 13,158 133 13,291
Eliminations - (12,419) (12,419) - (11,098 (11,098)
------------------------- -------------------------
Total Revenues $136,980 - 136,980 $122,091 - 122,091
------------------------- -------------------------
Direct Contribution to Profit
Domestic Segments:
Scientific, Technical, and Medical $14,875 $13,077
Professional/Trade 4,092 2,497
College 13,273 11,638
European Segment 11,038 10,699
Other Segments 2,366 1,442
------- -------
Total Direct Contribution to Profit 45,644 39,353
Shared Services and Admin. Costs (23,075) (22,287)
------- -------
Operating Income 22,569 17,066
Interest Expense - Net (1,209) (560)
------- -------
Income Before Taxes $21,360 $16,506
------- -------
As a result of recent acquisitions, total assets for the Professional/Trade
segment and College segment increased to approximately $164 million and $107
million, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During this seasonal period of cash usage, operating activities used $16.3
million of cash, or $4.3 million more than the prior year's comparable
quarter. The increase was primarily due to higher expense levels and
payments of accrued liabilities. The use of cash during this period is
consistent with the seasonality of the journal subscription and the
educational sector's receipts cycle that occurs, for the most part, later
in the fiscal year.
Investing activities used $146.9 million during the current quarter, or
$130.4 million more than the comparable prior year's quarter, as the
Company continued to expand its core publishing programs through
acquisitions including the Jossey-Bass publishing company and certain
higher education titles from Pearson Inc. as more fully described in note
6.
Financing activities primarily reflect the purchase of treasury shares,
dividend payments, and additional short-term borrowings of $26 million at a
floating interest rate of 5.6% to partially finance the acquisitions noted
above.
RESULTS OF OPERATIONS
FIRST QUARTER ENDED JULY 31, 1999
Revenues for the first quarter advanced 12% to $137.0 million compared with
$122.1 million in the prior year. Operating income for the current quarter
increased 32% to $22.6 million, compared with $17.1 million in the prior
year. Net income advanced 26% to $13.4 million.
All segments of the business contributed to the improvement in operating
results through the combined effect of revenue growth and cost containment.
Overall, approximately half of the Company's revenue growth for the quarter
was attributable to the acquisitions completed during the quarter, namely
the Jossey-Bass publishing company and certain higher education titles, as
more fully described in note 6. After financing costs these acquisitions
had a minimal impact on net income. The Company's overall strategy of
gaining market share in its core businesses by growing organically and
through targeted acquisitions, while at the same time improving margins, is
working.
Cost of sales as a percentage of revenues was 34.7% in both periods.
Operating expenses as a percentage of revenues declined to 46.5% in the
current quarter, down from 49.5% in the prior year's first quarter. The
operating margin improved to 16.5% in the current quarter, compared with
14.0% in the prior year's first quarter.
Interest income decreased $.8 million, as cash balances were used to
partially finance the acquisitions during the quarter. The effective tax
rate was 37.5% in the current quarter, compared with 36% in the prior year.
SEGMENT RESULTS
Domestic Scientific, Technical and Medical segment revenues increased
10%, largely driven by increased journal revenues. The direct
contribution to profit increased 14%. The direct contribution margin was
42.4% in the current quarter compared with 41.0% in the prior year's
first quarter.
Domestic Professional/Trade segment revenues advanced 30% over the prior
year, benefiting from the recent acquisition of Jossey-Bass and strong
demand for backlist titles, including increased demand from online
internet suppliers. Excluding Jossey-Bass revenues, domestic
Professional/Trade revenues increased 10% over the prior year. The direct
contribution to profit advanced 64%. The direct contribution margin was
13.9% compared with 11.0% in the prior year.
Domestic College segment revenues increased 10% compared with the prior
year, primarly related to the acquisition of certain higher education
titles during the quarter. Some orders which are normally received in
July of the first quarter were received in August of this year's second
quarter. As a result, August sales for Domestic College were very strong.
The direct contribution to profit increased 14%, and the direct
contribution margin improved to 37.5% during the current quarter compared
with 36.1% in the prior year's first quarter.
European segment revenues increased 4%, largely attributable to journal
programs. Translation effects of a stronger U.S. dollar adversely
impacted revenue growth by approximately 2%. The direct contribution
margin of 32.2% was approximately the same for both periods.
The improvement in the other segments' results of operations was led by
strong performances in the Company's Asian, Australian and Canadian
operations.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which specifies the accounting and
disclosure requirements for such instruments, and is effective for the
Company's fiscal year beginning on May 1, 2001. It is anticipated that the
adoption of this new accounting standard will not have a material effect on
the consolidated financial statements of the Company.
YEAR 2000 ISSUES
The Company has completed the review of its systems and products to
determine the extent and impact of the year 2000 issues, and has completed
the remediation and testing of its critical systems. Many of the Company's
systems were new and were designed to accommodate the year 2000 issue when
originally installed. The Company currently anticipates completing
corrective measures and testing of its non-critical systems and products by
October 31, 1999. The total cost to remedy the situation is currently
estimated to be approximately $2.9 million, of which approximately $2.5
million has been expended to date.
The Company has communicated with its key customers and suppliers in an
effort to assess how they intend to resolve their year 2000 issues.
Although nothing has come to the Company's attention to indicate that its
key customers or suppliers will not be able to resolve their year 2000
issues in a satisfactory and timely manner, there can be no assurance that
they have resolved their year 2000 issues, nor is it possible to estimate
the magnitude of the adverse impact it would have on the Company's
operations, if they fail to do so.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven member countries of the European union
established fixed conversion rates between their existing legal currencies
and the Euro, and adopted the Euro as their common legal currency.
The Company has completed its assessment of the impact that the conversion
to the Euro will have on its operations and the modifications that will be
required to its systems. Although it is still in the early stages of
implementing corrective measures, the Company believes that the Euro
conversion should not have a material effect on its operations.
* * * * *
The anticipated costs and timing of resolving the year 2000 and Euro issues
are based on numerous assumptions and estimates relating to future events
including the continued availability and cost of the personnel required to
modify the systems, the timely resolution of the third party customer and
supplier interface issues, and other similar uncertainties. The Company is
in the process of finalizing contingency plans which will be implemented,
if required.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to market risk primarily related to
interest rates and foreign exchange. It is the Company's policy to
monitor these exposures and to use derivative financial
instruments from time to time to reduce fluctuation in earnings
and cash flow when it is deemed appropriate to do so. The Company
does not use derivative financial instruments for trading or
speculative purposes.
Interest Rates
The Company had a $125 million variable rate long-term loan and
$26 million of variable rate short-term debt outstanding at July
31, 1999, which approximated fair value. The weighted average
interest rate as of July 31, 1999 was approximately 5.5%. The
Company did not use any derivative financial instruments to manage
this exposure.
Foreign Exchange Rates
The Company is exposed to foreign currency exchange movements
primarily in European, Asian, Canadian and Australian currencies.
Consequently, the Company, from time to time, enters into foreign
exchange forward contracts as a hedge against its overseas
subsidiaries' foreign currency asset, liability, commitment, and
anticipated transaction exposures, including intercompany
purchases. At July 31, 1999, the Company had open foreign exchange
forward contracts expiring through April 30, 2000 as follows.
Average
Currency Sold U.S. $Value Contract Rate
------------- ----------- -------------
Canadian Dollars $2.7 million $.6832
Australian Dollars $1.0 million $.6608
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
The Company filed a Form 8-K dated May 10, 1999 under Item
2. Acquisition or Disposition of Assets relating to the
acquisition of certain higher education publishing assets
from Pearson Inc.
The Company filed a Form 8-K dated May 21, 1999 under
Item 5. Other Events relating to the purchase of
Jossey-Bass Inc. from Pearson Education, Inc.
"Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995
-------------------------------------------------
This report contains certain forward-looking statements concerning
the Company's operations, performance and financial condition.
Reliance should not be placed on forward-looking statements, as
actual results may differ materially from those in any
forward-looking statements. Any such forward-looking statements are
based upon a number of assumptions and estimates that are
inherently subject to uncertainties and contingencies, many of
which are beyond the control of the Company, and are subject to
change based on many important factors. Such factors include, but
are not limited to: (i) the pace, acceptance, and level of
investment in emerging new electronic technologies and products;
(ii) subscriber renewal rates for the Company's journals; (iii) the
consolidation of the retail book trade market; (iv) the seasonal
nature of the Company's educational business and the impact of the
used book market; (v) the ability of the Company and its customers
and suppliers to satisfactorily resolve the year 2000 and Euro
issues in a timely manner; (vi) worldwide economic and political
conditions; and (vii) other factors detailed from time to time in
the Company's filing with the Securities and Exchange Commission.
The Company undertakes no obligation to update or revise any such
forward-looking statements to reflect subsequent events or
circumstances.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN WILEY & SONS, INC.
Registrant
By /s/William J. Pesce
William J. Pesce
President and
Chief Executive Officer
By /s/Robert D. Wilder
Robert D. Wilder
Executive Vice President and
Chief Financial Officer
Dated: September 10, 1999