SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT 1934 For the quarterly period ended October 31, 1996 Commission File No. 1-11507 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from to JOHN WILEY & SONS, INC. (Exact name of Registrant as specified in its charter) NEW YORK 13-5593032 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 605 THIRD AVENUE, NEW YORK, NY 10158-0012 (Address of principal executive offices) Zip Code Registrant's telephone number, (212) 850-6000 including area code NOT APPLICABLE Former name, former address, and former fiscal year, if changed since last report Indicate by check mark, whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares outstanding of each of the Registrant's classes of common stock as of October 31, 1996 were: Class A, par value $1.00 - 12,819,945 Class B, par value $1.00 - 3,201,058 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 October 31, 1996 and 1995; and April 30, 1996............ 3 Condensed Consolidated Statements of Income - Unaudited for the Six Months ended October 31, 1996 and 1995............ 4 Condensed Consolidated Statements of Cash Flow - Unaudited for the Six Months ended October 31, 1996 and 1995............ 5 Notes to Unaudited Condensed Consolidated Financial Statements. .6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders..............11 Item 6. Exhibits and Reports on Form 8-K.................................11 SIGNATURES 12 EXHIBITS 10.1 Credit Agreement Dated as of November 15, 1996 27 Financial Data Schedule
JOHN WILEY & SONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands) <TABLE> <CAPTION> (UNAUDITED) October 31, April 30, ------------------------------ 1996 1995 1996 -------- -------- -------- <S> <C> <C> <C> Assets Current Assets Cash and cash equivalents ......................... $ 1,290 2,078 55,284 Accounts receivable ............................... 71,786 62,484 60,276 Inventories ....................................... 59,995 45,622 43,981 Deferred income tax benefits ...................... 20,991 7,981 7,677 Prepaid expenses .................................. 4,337 3,305 3,413 -------- -------- -------- Total Current Assets .............................. 158,399 121,470 170,631 Product Development Assets ........................ 31,680 27,460 30,282 Property and Equipment ............................ 28,778 21,737 22,989 Intangible Assets ................................. 169,442 51,452 52,394 Other Assets ...................................... 13,552 7,655 8,205 ======== ======== ======== Total Assets ...................................... $401,851 229,774 284,501 ======== ======== ======== Liabilities & Shareholders' Equity Current Liabilities Notes payable and current portion of long-term debt $ 4,062 15,355 0 Accounts and royalties payable .................... 41,274 36,011 36,952 Deferred subscription revenues .................... 30,520 20,635 71,999 Accrued income taxes .............................. 7,165 9,937 5,068 Other accrued liabilities ......................... 36,345 20,322 25,097 -------- -------- -------- Total Current Liabilities ......................... 119,366 102,260 139,116 Long-Term Debt .................................... 121,000 0 0 Other Long-Term Liabilities ....................... 25,812 14,226 14,994 Deferred Income Taxes ............................. 12,211 5,293 12,409 Shareholders' Equity .............................. 123,462 107,995 117,982 ======== ======== ======== Total Liabilities & Shareholder's Equity .......... $401,851 229,774 284,501 ======== ======== ======== </TABLE> 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) <TABLE> <CAPTION> Three Months Six Months Ended October 31, Ended October 31, --------------------------------------------------------------------------------------- 1996 1995 1996 1995 ------- ------- --------- --------- <S> <C> <C> <C> <C> Revenues ............................ $ 107,070 86,831 206,287 174,923 Costs and Expenses Cost of sales ....................... 37,490 29,329 71,172 58,201 Operating and administrative expenses 60,171 49,268 112,499 95,887 Amortization of intangibles ......... 2,220 1,115 3,711 2,220 --------- --------- --------- --------- Total Costs and Expenses ............ 99,881 79,712 187,382 156,308 --------- --------- --------- --------- Operating Income .................... 7,189 7,119 18,905 18,615 Interest Income and Other ........... 21 134 344 531 Interest Expense .................... (1,750) (187) (2,494) (216) --------- --------- --------- --------- Interest Income (Expense) - Net ..... (1,729) (53) (2,150) 315 --------- --------- --------- --------- Income Before Taxes ................. 5,460 7,066 16,755 18,930 Provision For Income Taxes .......... 1,966 2,826 6,032 7,572 --------- --------- --------- --------- Net Income .......................... $ 3,494 4,240 10,723 11,358 ========= ========= ========= ========= Net Income Per share Primary ............................. $ 0.21 0.26 0.65 0.69 Fully Diluted ....................... $ 0.21 0.26 0.65 0.69 Cash Divident Per Share Class A Common ...................... $ 0.1000 0.0875 0.2000 0.1750 Class B Common ...................... $ 0.0875 0.0775 0.1750 0.1550 Average Shares Primary ............................. 16,447 16,538 16,486 16,496 Fully Diluted ....................... 16,492 16,568 16,507 16,517 </TABLE> 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) Six Months Ended October 31, ------------------------ 1996 1995 --------- --------- Operating Activities Net income ................................... $ 10,723 11,358 Non-cash items ............................... 23,235 25,495 Net change in operating assets and liabilities (72,917) (63,063) --------- --------- Cash Used in Operating Activities ............ (38,959) (26,210) --------- --------- Investing Activities Additions to product development assets ...... (13,327) (11,909) Additions to property and equipment .......... (4,409) (4,153) Acquisition of publishing assets ............. (103,968) (1,467) Proceeds from sale of publishing lines ....... 0 0 --------- --------- Cash Used for Investing Activities ........... (121,704) (17,529) --------- --------- Financing Activities Purchase of treasury shares .................. (5,505) (1,162) Additions to long-term debt .................. 121,000 0 Repayment of acquired debt ................... (10,542) 0 Net borrowings of short-term debt ............ 4,062 14,705 Cash dividends ............................... (3,139) (2,748) Proceeds from exercise of stock options ...... 509 840 --------- --------- Cash Provided by Financing Activities ........ 106,385 11,635 --------- --------- Effects of Exchange Rate Changes on Cash ..... 284 (228) --------- --------- Cash and Cash Equivalents Decrease for Period .......................... (53,994) (32,332) Balance at Beginning of Period ............... 55,284 34,410 ========= ========= Balance at End of Period ..................... $ 1,290 2,078 ========= ========= Cash Paid During the Period for Interest ..................................... $ 2,179 103 Income taxes ................................. $ 4,415 728 The accompanying Notes are an integral part of the condensed consolidated financial statements.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1996 In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's consolidated financial position as of October 31, 1996 and 1995, and April 30, 1996, and results of operations and cash flows for the periods ended October 31, 1996 and 1995. 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. The results for the six months ended October 31, 1996 are not necessarily indicative of the results to be expected for the full year. 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. Inventories were as follows: October 31, April 30, ------------------ -------------- 1996 1995 1996 -------- -------- -------- (Thousands) Finished goods ....... $ 49,336 37,408 39,616 Work-in-process ...... 9,350 6,494 4,865 Paper, cloth and other 5,166 5,983 3,026 -------- -------- -------- 63,852 49,885 47,507 LIFO reserve ......... (3,857) (4,263) (3,526) -------- -------- -------- Total inventories .... $ 59,995 45,622 43,981 -------- -------- -------- Approximately $10 million of the increase in inventories at October 31, 1996 relates to the acquisition of VCH. 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. The transaction was initially financed through available cash balances, existing lines of credit, and a $75 million bridge line of credit. Subsequent to October 31, 1996, the Company obtained permanent financing as more fully described in note 6. 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 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. (In thousands, except per share information) Six Months Ended October 31, ----------------------------------- 1996 1995 -------- ------- (In thousands, except per share information Revenues .................... $ 215,963 $ 205,712 Net Income .................. $ 9,314 $ 7,147 Net Income Per Share ........ 0.56 0.43 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 under which the Company may borrow up to $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 as of December 31, 1996 have mandatory repayments of 24% of such amount on October 31, 2000, 2001 and 2002, respectively, and 28% on October 31, 2003. At October 31, 1996, $121 million of short-term obligations have been classified as long-term as it is the Company's intention to refinance these obligations under the new term loan facility. 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 $ 48.5 million was available for the payment of future dividends as of October 31, 1996. 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 OCTOBER 31, 1996 FINANCIAL CONDITION During this seasonal period of cash usage, operating activities used $39.0 million of cash, or $12.7 million more than the prior year's comparable period. The increase was primarily due to higher expense levels to support the higher volume of business. The use of cash during this period is consistent with the seasonality of the journal subscription and the educational sector's receipts cycle which occur, for the most part, in the second half of the fiscal year. Investing activities used $121.7 million during the current quarter, or $104.2 million more than the comparable prior year's quarter, 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 SECOND QUARTER ENDED OCTOBER 31, 1996 Revenues for the second quarter advanced 23% to $107.1 million compared with $86.8 million in the prior year. Operating income for the current quarter was $7.2 million compared with $7.1 million in the prior year. Net income declined from $4.2 million in the prior year to $3.5 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 $1.2 million, or $0.07 per share, primarily due to amortization of intangibles and financing costs related to the acquisition. 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. 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. Cost of sales as a percentage of revenues increased from 33.8% in the prior year to 35.0% due to product mix and higher royalty costs. Operating expenses as a percentage of revenues were 56.2% in the current quarter compared with 56.7% in the prior year's second quarter. Interest expense increased by $1.6 million due to the financing costs related to the VCH acquisition. The effective tax rate of 36% in the current quarter reflects a reduction of 4% from the prior year's second quarter due in large part to the tax benefits of VCH's acquisition related amortization and financing costs. RESULTS OF OPERATIONS SIX MONTHS ENDED OCTOBER 31, 1996 Revenues for the first six months of fiscal 1997 were $206.3 million, or 18% ahead of the $174.9 million in the comparable prior year period. Operating income was $18.9 million, or $0.3 million ahead of the prior year period. Net income of $10.7 million for the current year period declined by $0.6 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 11%, and reducing operating income by $0.9 million and net income by $2.2 million, or $0.13 per share, primarily due to amortization of intangibles and financing cost related to the acquisition. 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 second quarter. For the year-to-date, costs of sales as a percentage of revenues increased from 33.3% to 34.5%, and operating expenses declined from 54.8% to 54.5%. Interest expense increased by $2.3 million due to the financing costs related to the VCH acquisition. The effective tax rate of 36% in the current period reflects a reduction of 4% 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 4. Submission of Matters to a Vote of Security Holders The following matters were voted upon at the annual meeting of shareholders of the Company on September 19, 1996. Election of Directors Fifteen directors as indicated in the Proxy Statement were elected to the Board, five of whom were elected by the holders of Class A Common Stock, and ten by the holders of Class B Common Stock Amendment of the 1991 Key Employee Stock Plan The amendment to limit to 150,000 the maximum number of shares of Class A Common Stock of the Company for which, in the aggregate, options, performance stock awards, and restricted stock awards can be granted to any one individual in any calendar year. Votes for 3,813,259 Votes against 43,716 Abstentions 20,083 Ratification of Appointment of Arthur Andersen LLP, as Independent Public Accountants for the Fiscal Year Ending April 30, 1997 The appointment was ratified as follows: Votes for 3,887,199 Votes against 2,234 Abstentions 2,424 Item 6. Exhibits and Reports on Form 8-K -------------------------- (a) Exhibits ------ 10.1 Credit agreement dated as of November 15, 1996 among the Company, the Banks from time to time parties hereto, and Morgan Guaranty Trust Company of New York, as Agent. 27 Financial Data Schedule (b) Reports on Form 8-K ---------------- The Company filed a Form 8-K/A dated June 13, 1996 amending the Form 8-K dated June 13, 1996 to provide Financial Statements of Businesses Acquired under Item 7(a) and Pro Forma Financial Information under Item 7(b).
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: December 12, 1996