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