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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: April, 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from to
Commission file number 1-11507
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
incorporation or organization Identification No.
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
-------------------------------
Securities registered pursuant to
Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
- ------------------------------- ------------------------------
Class A Common Stock, New York Stock Exchange
par value $1.00 per share
Class B Common Stock, New York Stock Exchange
par value $1.00 per share
Securities registered pursuant None
to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
The number of shares outstanding of the Registrant's Class A and Class
B Common Stock, par value $1.00 per share as of May 31, 1998, was 12,916,657 and
3,085,158 respectively, and the aggregate market value of such shares of Common
Stock held by non-affiliates of the Registrant as of such date was $663,476,279
based upon the closing market price of the Class A and Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive proxy Statement to be filed with the
Commission on or about August 7, 1998 for the Annual Meeting of Shareholders to
be held on September 17, 1998, (the "1998 Proxy Statement") is, to the extent
noted below, incorporated by reference in Part III.
PART I
Item 1. Business
The Company is a New York corporation incorporated on January 15, 1904. (As
used herein the term "Company" means John Wiley & Sons, Inc., and its
subsidiaries and affiliated companies, unless the context indicates otherwise).
The Company operates in one business segment, namely publishing, which
develops, produces, markets and services products in print and electronic
formats including journals and other subscription-based products, professional
and reference works, consumer books and textbooks, for the scientific,
technical, professional, trade and educational markets in the United States and
internationally.
Journal publications are primarily in the scientific and technical, and
biomedical research areas. Book publications are primarily in the areas of pure
and applied science, engineering, architecture, the social sciences,
biomedicine, accounting, computer science, business and culinary arts and
hospitality. Professional and reference books, encyclopedias, dictionaries, and
periodicals are intended primarily for practicing and research professionals and
for libraries, while textbooks are produced primarily for use in formal
instruction in the college and university markets, as well as the secondary
school market in Australia. Some of these, as well as nonfiction consumer
publications, are also marketed to the general public. In addition, the Company
markets and distributes books from other publishers. The Company also develops
and markets electronic versions of certain of its print products, as well as
computer software and electronic data bases for educational use and professional
research and training.
In fiscal 1998, the Company sold its domestic law publishing program for
$26.5 million, and reinvested the proceeds by acquiring the publishing assets of
Van Nostrand Reinhold (VNR) for $28.5 million in cash. The domestic law program
had limited potential for the Company. VNR reinforces the Company's strong
position in four core subject areas: architecture/design,
environmental/industrial science, culinary arts/hospitality, and business
technology.
In fiscal 1997, the Company acquired a 90% interest in the German based VCH
Publishing Group (VCH) for approximately $99 million in cash. VCH is a leading
scientific, technical, and professional publisher of journals and books in such
disciplines as chemistry, architecture and civil engineering.
The Company is on the Internet with a World Wide Web site located at
http://www.wiley.com.
Publishing Operations
The Company publishes approximately 460 journals and other
subscription-based products, which accounted for approximately 37% of the
Company's fiscal 1998 revenues. Most journals are owned by the Company, in which
case they may or may not be sponsored by a professional society. Some are owned
by such societies and published by the Company under an agreement. Societies
which sponsor or own such journals generally receive a royalty and/or other
consideration which varies with the nature of the relationship. The Company
usually enters into agreements with the editors of journals which state the
duties of the editors, and the fees and expenses for their services.
Contributors of journal articles transfer publication rights to the Company or
professional society, as applicable.
Journal subscriptions result primarily from direct mail and other
advertising and promotional campaigns, renewals which are solicited annually
either directly or by companies commonly referred to as independent subscription
agents, and memberships in the professional societies for those journals that
are sponsored by such societies. Journals are generally mailed to subscribers
directly from independent printers.
Materials for book publications are obtained from authors throughout most
of the world through the efforts of an editorial staff, outside editorial
advisors, and advisory boards. Most materials originate with their authors, but
many are prepared as a result of suggestions or solicitations by editors or
advisors. The Company usually enters into agreements with authors which state
the terms and conditions under which the respective authors' materials will be
published and under which other related rights may be exercised, the name in
which the copyright will be registered, the basis for any royalties, and other
matters. Most of the authors are compensated by royalties which vary with the
nature of the product and its anticipated sales potential. In general, royalties
for textbooks and consumer books are higher than royalties for research and
reference works. The Company makes advances against future royalties to authors
of certain of its publications. The Company continues to add new titles, revise
existing titles, and discontinue the sale of others in the normal course of its
business. The Company's general practice is to revise its basic textbooks every
three to five years, if warranted, and to revise other titles as appropriate.
Subscription-based products, other than journals, are updated more frequently on
a regular schedule. Approximately 36% of the Company's fiscal 1998 domestic book
publishing revenues were from titles published or revised in that fiscal year.
Professional and consumer book sales consist of sales to trade bookstores
serving the general public, to wholesalers who supply such bookstores, to
certain college bookstores for their non-textbook requirements, to individual
professional practitioners, and to research institutions, jobbers, libraries
(including public, professional, academic, and other special libraries),
industrial organizations, and governmental agencies. The Company employs sales
representatives who call upon independent bookstores, along with national and
regional chain bookstores, wholesalers and jobbers. Trade sales to bookstores,
wholesalers and jobbers are generally made on a fully returnable basis. Sales of
professional and consumer books also result from direct mail campaigns,
telemarketing, on-line access, and advertising and reviews in periodicals. The
mailings and advertising are intended to promote sales through bookstores and
jobbers, as well as to solicit sales directly.
Adopted textbooks (i.e., textbooks prescribed for course use) are sold
primarily to bookstores serving educational institutions in the United States
(i.e., college bookstores). The Company employs sales representatives who call
on faculty members responsible for selecting books to be used in courses, and on
the bookstores which serve such institutions and their students. Textbook sales
are generally made on a fully returnable basis. The textbook business is
seasonal with the majority of textbook sales occurring during June through
August and November through January. Significant amounts of inventory are
acquired prior to those periods in order to meet customer delivery requirements.
There is an active used textbook market which negatively affects the sales of
new textbooks.
The Company performs marketing and distribution services for other
publishers under agency arrangements. It also engages in co-publishing of titles
with foreign publishers and in publication of adaptations of works from other
publishers for particular markets. The Company also receives licensing revenues
from photocopies and electronic uses and reproductions of journal articles and
other materials.
Like most other publishers, the Company generally contracts with
independent printers and binderies for their services. The Company purchases its
paper from independent suppliers and printers. Paper prices continued to decline
during fiscal 1998. The Company believes that adequate printing and binding
facilities, and sources of paper and other required materials are available to
it, and that it is not dependent upon any single supplier. Book products are
distributed from Company operated warehouses.
The Company produces electronic versions of some of its products including
software, video, CD-ROM, and through on-line services. The Company believes that
the demand for new electronic technology products will increase. Accordingly, to
properly service its customers and to remain competitive, the Company
anticipates it will be necessary to increase its expenditures related to such
new technologies over the next several years, including distribution of
virtually all the Company's journals as full-text electronic files over the
Internet.
The Company's publishing business is not dependent upon a single customer,
the loss of whom could have a material adverse effect. The journal subscription
business is primarily sourced through independent subscription agents who
facilitate the journal ordering process by consolidating the subscription
orders/billings of each subscriber with various publishers. Monies are collected
in advance from subscribers by the subscription agents and are remitted to the
journal publishers, 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 position and
liquidity. Subscription agents account for approximately 26% of total
consolidated revenues and no one agent accounts for more than 6% of total
consolidated revenues. The book publishing business has witnessed a significant
concentration in national and regional bookstore chains in recent years,
however, no one customer accounts for more than 5% of total consolidated
revenues.
International Operations
The Company's publications are sold throughout most of the world through
subsidiaries located in Europe, Canada, Australia, and Asia, or through agents,
or directly from the United States. These subsidiaries market their own
indigenous publications, as well as publications produced by the domestic
operations and other subsidiaries and affiliates. The Export Sales Department in
the United States markets the Company's publications through agents as well as
foreign sales representatives in countries not served by a foreign subsidiary.
John Wiley & Sons International Rights, Inc. sells foreign reprint and
translations rights. The Company publishes, or licenses others to publish, its
products which are distributed throughout the world in 35 foreign languages.
Approximately 47% of the Company's fiscal 1998 revenues were derived from
non-U.S. markets.
Copyrights, Patents, Trademarks, and Environment
Substantially all of the Company's publications are protected by copyright,
either in its own name, in the name of the author of the work, or in the name of
the sponsoring professional society. Such copyrights protect the Company's
exclusive right to publish the work in the United States and in many countries
abroad for specified periods: in most cases the author's life plus 50 years, but
in any event a minimum of 28 years for works published prior to 1978 and 35
years for works published thereafter.
The Company does not own any other material patents, franchises, or
concessions, but does have registered trademarks and service marks in connection
with its publishing businesses. The Company's operations are generally not
affected by environmental legislation.
Competition Within the Publishing Industry
The sectors of the publishing industry in which the Company is engaged are
highly competitive. The principal competitive criteria for the publishing
industry are believed to be product quality, suitability of format and subject
matter, author reputation, price, timely availability of both new titles and
revisions of existing texts, on-line availability of journal and other published
information and, for textbooks and certain trade books, timely delivery of
products to retail outlets. Recent years have seen a consolidation trend within
the publishing industry, including several publishing companies having been
acquired by larger publishers and other companies.
Based upon currently available industry statistics, the Company believes
that of books published and sold in the United States, it accounts for
approximately 3% of the total sales of such university and college textbooks,
and approximately 3% of the total sales of such professional books.
The Company knows of no reliable industry statistics which would enable it
to determine its share of the various foreign markets in which it operates. The
Company believes that the percentage of its total book publishing sales in
markets outside the United States is higher than that of most of the United
States publishers. The Company also believes it is in the top rank of publishers
of scientific and technical journals worldwide, as well as the leading
commercial chemistry publisher at the research level, and one of the four
largest publishers of university and college textbooks for the "hardside"
disciplines, i.e. engineering, sciences and mathematics.
Employees
As of April 30, 1998, the Company employed approximately 2,100 persons on a
full-time basis worldwide, none of whom are unionized. Management considers
relations with its employees to be generally satisfactory.
Financial Information About Industry Segments
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements listed in the attached index is incorporated herein by
reference.
Financial Information about Foreign and
Domestic Operations and Export Sales
The note entitled "Segment Information" of the Notes to Consolidated
Financial Statements listed in the attached index is incorporated herein by
reference.
Executive Officers
Set forth below as of April 30, 1998 are the names and ages of all
executive officers of the Company, the period during which they have been
officers, and the offices presently held by each of them.
OFFICER
NAME AND AGE SINCE PRESENT OFFICE
- --------------------------------------------------------------------------------
Bradford Wiley II 1993 Chairman of the Board since January 1993 and a
57 Director
Charles R. Ellis 1988 President and Chief Executive Officer and a
62 Director throug April 30, 1998
William J. Pesce 1989 President and Chief Executive Officer and a
47 Director since May 1, 1998, (previously Chief
Operating Officer Executive Vice President
and Group President, Educational &
International Publishing; Senior Vice President
Educational & International Publishing Group
and Senior Vice President, Educational
Publishing Group)
Stephen A. Kippur 1986 Executive Vice President and Group President,
51 PRT since June 1996 (previously Senior Vice
President, Professional, Reference & Trade
Publishing Group)
Richard S. Rudick 1978 Senior Vice President, General Counsel since
59 June 1989
Robert D. Wilder 1986 Executive Vice President and Chief Financial
49 and Support Operations Officer since June 1996
(previously Senior Vice President, Chief
Financial Officer)
William Arlington 1990 Senior Vice President, Human Resources since
49 June 1996 (previously Vice President, Human
Resources)
Peter W. Clifford 1989 Senior Vice President, Finance, Corporate
52 Controller and Chief Accounting Officer since
June 1996 (previously Vice President, Finance
and Controller)
Deborah E. Wiley 1982 Senior Vice President, Corporate Communications
52 since June 1996 and a Director (previously Vice
President and Director of Corporate
Communications)
Timothy B. King 1996 Senior Vice President, Planning and Development
57 since June 1996 (previously Vice President,
Planning and Development)
Each of the officers listed above will serve until the next organizational
meeting of the Board of Directors of the Company and until each of the
respective successors is duly elected and qualified. Deborah E. Wiley is the
sister of Bradford Wiley II. There is no other family relationship among any of
the aforementioned individuals.
Item 2. Properties
The Company's publishing businesses occupy office, warehouse, and
distribution centers in various parts of the world, as listed below (excluding
those locations with less than 10,000 square feet of floor area, none of which
is considered material property).
LOCATION PURPOSE APPROX. SQ. FT. LEASE EXPIRATION DATE
- -------------------------------------------------------------------------------
LEASED-DOMESTIC
New York Executive and 230,000 2003
Editorial Offices
New Jersey Distribution 170,000 2003
Center and Office
New Jersey Warehouse 132,000 2002
Colorado Office 14,000 2000
OWNED-FOREIGN
Germany Office and Warehouse 66,000
LEASED-FOREIGN
Australia Office 16,000 2002
Warehouse 26,000 2000
Canada Office 14,000 2001
Warehouse 41,000 2001
England Office 48,000 2009
Warehouse 69,000 2012
Germany Office 23,000 1999
Singapore Office and Warehouse 53,000 1999
All of the buildings and the equipment owned or leased are believed to be
in good condition and are generally fully utilized. The Company considers its
facilities overall to be adequate for its present and near-term anticipated
needs.
Item 3. Legal Proceedings
The Company is involved in routine litigation in the ordinary course of its
business. In the opinion of management, the ultimate resolution of all pending
litigation will not have a material effect upon the financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Company's security holders during the last
quarter of the fiscal year ended April 30, 1998.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
The Quarterly Share Prices, Dividends and Related Stockholder Matters
listed in the attached index are incorporated herein by reference.
Item 6. Selected Financial Data
The Selected Financial Data listed in the attached index is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition andResults
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations listed in the attached index is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in the attached
index are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers
The information regarding the Board of Directors on pages 4 to 11 of the
1998 Proxy Statement is incorporated herein by reference, and information
regarding Executive Officers appears in Part I of this report.
Item 11. Executive Compensation
The information on pages 11 to 17 of the 1998 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
The information on pages 2, 3, 9, and 10 of the 1998 Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
(a) Financial Statements and Schedules
(1) List of Financial Statements filed.
The financial statements listed in the attached
index are filed as part of this Report.
(2) List of Financial Statement Schedules filed.
The financial statement schedules listed in the
attached index are filed as part of this Report.
(b) Reports on Form 8-K.
No reports on form 8-K were filed during the quarter ended
April 30, 1998.
(c) Exhibits
2.1 Purchase and Assignment Agreement dated May 7, 1996 among the Company
and VCH Publishing Limited Partnership (incorporated by reference to
the Company's Report on Form 8-K dated as of June 13, 1996).
2.2 Purchase and Assignment Agreement dated May 7, 1996 among the Company
and Gesellschaft Deutscher Chemiker e.V. and Deutsche Pharmazeutische
Gesellschaft e.V. (incorporated by reference to the Company's Report
on Form 8-K dated as of June 13, 1996).
3.1 Restated Certificate of Incorporation (incorporated by reference to
the Company's Report on Form 10-K for the year ended April 30, 1992).
3.2 Certificate of Amendment of the Certificate of Incorporation dated
October 13, 1995 (incorporated by reference to the Company's Report on
Form 10-K for the year ended April 30, 1997)
3.3 By-Laws as Amended, dated as of December 1997 (incorporated by
reference to the Company's Report on Form 10-Q for the quarterly
period ended October 31, 1997).
4.1 Form of agreement between the Company and certain employees
restricting transfer of Class B Common Stock (incorporated by
reference to the Company's Report on Form 10-Q for the quarterly
period ended January 31, 1986).
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 (incorporated by reference to the
Company's report on Form 10-Q for the quarterly period ended October
31, 1996).
10.2 1991 Key Employee Stock Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated August 8, 1991).
10.3 Amendment to 1991 Key Employee Stock plan dated as of September 19,
1996 (incorporated by reference to the Company's Definitive Proxy
Statement dated August 9, 1996).
10.4 1982 and 1987 Incentive Stock Option and Performance Stock Plans
(incorporated by reference to the Company's Definitive Proxy
Statements dated July 30, 1982 and August 10, 1987).
10.5 Amendment to 1982 Stock Option and Performance Stock Plan dated as of
September 19, 1985 (incorporated by reference to the Company's Report
on Form 8-K dated as of September 19, 1985).
10.6 Amendment to 1982 Incentive Stock Option and Performance Stock Plan
dated as of March 2, 1989 (incorporated by reference to the Company's
Report on Form 10-K for the year ended April 30, 1989).
10.7 Amendment to 1987 Incentive Stock Option and Performance Stock Plan
dated as of March 2, 1989 (incorporated by reference to the Company's
Report on Form 10-K for the year ended April 30, 1989).
10.8 1990 Director Stock Plan as Amended and Restated as of June 22, 1995
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 1997).
10.9 1989 Supplemental Executive Retirement Plan (incorporated by reference
to the Company's Report on Form 10-K for the year ended April 30,
1989).
10.10 Agreement of Lease dated as of May 16, 1985 between Fisher 40th & 3rd
Company and Hawaiian Realty, Inc., Landlord, and the Company, Tenant
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 1985).
10.11 Form of the Fiscal Year 1996 Executive Long-Term Incentive Plan
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 1995).
10.12 Form of the Fiscal Year 1997 Executive Long-Term Incentive Plan
(incorporated by reference to the Company's Report on Form 10-K for
the year ended April 30, 1996).
10.13 Form of the Fiscal Year 1998 Executive Long-Term Incentive Plan.
10.14 Form of the Fiscal Year 1998 Executive Annual Incentive Plan.
10.15 Senior Executive Employment Agreement dated as of January 8, 1998
between William J. Pesce and the Company.
10.16 Senior Executive Employment Agreement amended as of March 29, 1995
between Charles R. Ellis and the Company (incorporated by reference to
the Company's Report on Form 10-K for the year ended April 30, 1995).
10.17 Restricted Stock Award Agreement dated as of June 23, 1994 between
Charles R. Ellis and the Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.18 Senior Executive Employment Agreement dated as of July 1, 1994 between
Stephen A. Kippur and the Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.19 Amendment No. 1 to Stephen A. Kippur's Senior Executive Employment
Agreement dated as of July 1, 1994 (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.20 Restricted Stock Award Agreement dated as of June 23, 1994 between
Stephen A. Kippur and the Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.21 Restricted Stock Award Agreement dated as of June 23, 1994 between
William J. Pesce and the Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.22 Senior Executive Employment Agreement dated as of July 1, 1994 between
Robert D. Wilder and the Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.23 Amendment No. 1 to Robert D. Wilder's Senior Executive Employment
Agreement dated as of July 1, 1994 (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.24 Restricted Stock Award Agreement dated as of June 23, 1994 between
Robert D. Wilder and the Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarterly period ended July 31,
1995).
10.25 Employment agreement letter dated as of January 16, 1997 between
Richard S. Rudick and the Company (Incorporated by reference to the
Company's Report on Form 10-K for the year ended April 30, 1997).
22 List of Subsidiaries of the Company.
23 Consent of Independent Public Accountants (included in this report as
listed in the attached index).
27 Financial Data Schedule.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements and information appearing on the
pages indicated are filed as part of this Report:
Page(s)
Report of Independent Public Accountants and
Consent of Independent Public Accountants................................16
Consolidated Statements of Financial Position
as of April 30, 1998 and 1997............................................17
Consolidated Statements of Income and Retained Earnings
for the years ended April 30, 1998, 1997 and 1996........................18
Consolidated Statements of Cash Flows for the
years ended April 30, 1998, 1997 and 1996................................19
Notes to Consolidated Financial Statements..........................20 - 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................30 - 32
Results by Quarter (Unaudited)...........................................33
Quarterly Share Prices, Dividends and Related Stockholder Matters........33
Selected Financial Data..................................................34
Schedule II - Valuation and Qualifying Accounts..........................35
Other schedules are omitted because of absence of conditions under which
they apply or because the information required is included in Notes to
Consolidated Financial Statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders
of John Wiley & Sons, Inc.:
We have audited the accompanying consolidated statements of financial
position of John Wiley & Sons, Inc. (a New York corporation), and subsidiaries
as of April 30, 1998 and 1997, and the related consolidated statements of income
and retained earnings and cash flows for each of the three years in the period
ended April 30, 1998. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and the schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of John Wiley & Sons, Inc., and
subsidiaries as of April 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
June 11, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in the John Wiley & Sons, Inc. Form 10-K for the year
ended April 30, 1998, into the Company's previously filed Registration Statement
File Nos. 33-60268, 2-65296, 2-95104, 33-29372 and 33-62605.
ARTHUR ANDERSEN LLP
New York, New York
July 7, 1998
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
John Wiley & Sons, Inc. and Subsidiaries April 30
Dollars in thousands -------------------------
1998 1997
-------------------------
Assets
Current Assets
Cash and cash equivalents $ 127,405 $ 79,116
Accounts receivable 56,147 61,841
Inventories 44,912 49,100
Deferred income tax benefits 456 7,143
Prepaid expenses 8,690 6,935
-------------------------
Total Current Assets 237,610 204,135
-------------------------
Product Development Assets 36,039 31,683
Property and Equipment 34,310 32,699
Intangible Assets 172,798 165,147
Deferred Income Tax Benefits 15,593 13,004
Other Assets 10,564 11,276
-------------------------
Total Assets $ 506,914 $ 457,944
-------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ -- $ 172
Accounts and royalties payable 36,854 30,988
Deferred subscription revenues 99,225 94,419
Accrued income taxes 1,174 3,825
Other accrued liabilities 41,100 34,948
-------------------------
Total Current Liabilities 178,353 164,352
-------------------------
Long-Term Debt 125,000 125,000
Other Long-Term Liabilities 26,663 24,907
Deferred Income Taxes 16,147 14,702
Shareholders' Equity
Common stock issued
Class A (16,776,549 and 16,569,066 shares) 16,777 16,569
Class B (3,967,182 and 4,037,082 shares) 3,967 4,037
Additional paid-in capital 40,369 34,332
Retained earnings 150,392 120,823
Cumulative translation adjustment (540) 106
Unearned deferred compensation (2,715) (3,254)
-------------------------
208,250 172,613
Less Treasury shares at cost (Class A-3,874,603
and 3,824,978; Class B-871,024 and 871,024) (47,499) (43,630)
-------------------------
Total Shareholders' Equity 160,751 128,983
-------------------------
Total Liabilities and Shareholders' Equity . $ 506,914 $ 457,944
-------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
John Wiley & Sons, Inc. and Subsidiaries
Dollars in thousands except per share data For the years ended April 30
------------------------------------
1998 1997 1996
------------------------------------
Revenues $ 467,081 $ 431,974 $ 362,704
Costs and Expenses
Cost of sales 164,169 155,245 126,718
Operating and administrative expenses 250,008 233,771 198,494
------------------------------------
Amortization of intangibles 12,040 8,161 4,537
Total Costs and Expenses 426,217 397,177 329,749
Gain on Sale of Publishing Assets 21,292 -- --
Operating Income 62,156 34,797 32,955
Interest Income and Other 3,863 2,281 6,211
Interest Expense (7,933) (6,225) (368)
------------------------------------
Interest Income (Expense)-Net (4,070) (3,944) 5,843
------------------------------------
Income Before Taxes 58,086 30,853 38,798
Provision for Income Taxes 21,498 10,513 14,118
------------------------------------
Net Income 36,588 20,340 24,680
------------------------------------
Retained Earnings at Beginning of Year 120,823 106,716 87,541
Cash Dividends
Class A Common ($.45, $.40, and $.35 per share) 5,766 5,116 4,492
Class B Common ($.40, $.35, and $.31 per share) 1,253 1,117 1,013
------------------------------------
Total Dividends 7,019 6,233 5,505
------------------------------------
Retained Earnings at End of Year $ 150,392 $ 120,823 $ 106,716
------------------------------------
Income Per Share
Diluted $ 2.22 $ 1.24 $ 1.49
Basic $ 2.32 $ 1.29 $ 1.55
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
John Wiley & Sons, Inc. and Subsidiaries For the years ended April 30
Dollars in thousands ------------------------------------
1998 1997 1996
------------------------------------
Operating Activities
Net Income $ 36,588 $ 20,340 $ 24,680
Noncash Items
Amortization of intangibles 12,040 8,161 4,537
Amortization of composition costs 20,213 17,763 15,196
Depreciation of property and equipment 9,188 8,340 7,314
Reserves for returns, doubtful accounts, and obsolescence 10,181 11,861 6,586
Deferred income taxes 9,234 3,243 7,873
Gain on sale of publishing assets (21,292) -- --
Other 12,207 7,300 7,583
Changes in Operating Assets and Liabilities
Increase in receivables (2,872) (178) (12,150)
Decrease (increase) in inventories 4,426 1,791 (3,734)
Increase (decrease) in accounts and royalties payable 6,000 (12,109) 3,821
Increase in deferred subscription revenues . 5,983 7,769 4,996
Net change in other operating assets and liabilities 2,162 (10,372) 1,420
------------------------------------
Cash Provided by Operating Activities 104,058 63,909 68,122
------------------------------------
Investing Activities
Additions to product development assets (30,220) (25,466) (26,483)
Additions to property and equipment (11,935) (8,868) (9,310)
Proceeds from sale of publishing assets 26,500 -- --
Acquisition of publishing assets (30,491) (103,980) (3,968)
------------------------------------
Cash Used for Investing Activities (46,146) (138,314) (39,761)
------------------------------------
Financing Activities
Purchase of treasury shares (4,281) (10,506) (3,323)
Additions to long-term debt -- 125,000 --
Repayment of long-term debt -- (10,542) --
Net repayments of short-term debt (156) (1,270) (624)
Cash dividends (7,019) (6,233) (5,505)
Proceeds from issuance of stock on option exercises and other 2,288 1,249 2,289
------------------------------------
Cash Provided by (Used for) Financing Activities (9,168) 97,698 (7,163)
------------------------------------
Effects of exchange rate changes on cash (455) 539 (324)
------------------------------------
Cash and Cash Equivalents
Increase for year 48,289 23,832 20,874
Balance at beginning of year 79,116 55,284 34,410
------------------------------------
Balance at end of year $ 127,405 $ 79,116 $ 55,284
------------------------------------
Cash Paid During the Year for
Interest $ 8,042 $ 5,143 $ 647
Income taxes $ 12,409 $ 7,995 $ 2,799
The accompanying notes are an integral part of the consolidated financial
statements.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of John Wiley & Sons, Inc., and its majority-owned subsidiaries (the
"Company"). All significant intercompany items have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with
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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Subscription Revenues: Subscription revenues are generally collected in advance.
These revenues are deferred and recognized as earned when the related issue is
shipped to the subscriber.
Sales Returns and Doubtful Accounts: The Company provides an estimated allowance
for doubtful accounts and for future returns on sales made during the year. The
allowance for doubtful accounts and returns (estimated returns net of inventory
and royalty costs) is shown as a reduction of receivables in the accompanying
consolidated balance sheets and amounted to $41.6 and $34.5 million at April 30,
1998 and 1997, respectively.
Depreciation and Amortization: Buildings, leasehold
improvements, and capital leases are amortized over the lesser of the estimated
useful lives of the assets up to 40 years, or the duration of the various
leases, using the straight-line method. Furniture and equipment is depreciated
principally on the straight-line method over estimated useful lives ranging from
3 to 10 years. Composition costs representing the costs incurred to bring an
edited manuscript to publication including typesetting, proofreading, design and
illustration, etc., are capitalized and amortized over estimated useful lives
representative of product revenue patterns, generally three years.
Intangible Assets: Intangible assets consist of acquired publication rights,
which are principally amortized over periods ranging from 3 to 30 years based on
the projected revenues of rights acquired; noncompete agreements; which are
amortized over the term of such agreements, and goodwill and other intangibles,
which are amortized on a straight - line basis over periods ranging from 5 to 40
years. If facts and circumstances indicate that long-lived assets and/or
intangible assets may be permanently impaired, it is the Company's policy to
assess the carrying value and recoverability of such assets based on an analysis
of undiscounted future cash flows of the related operations. Any resulting
reduction in carrying value based on the estimated fair value would be charged
to operating results.
Foreign Exchange Contracts: The Company, from time to time, enters into forward
exchange contracts as a hedge against its overseas subsidiaries' foreign
currency asset, liability, and commitment exposures. Such exposures include
overseas subsidiaries' anticipated annual journal subscription revenues, as well
as that portion of the revenues and related receivables on sales of book
products, that are denominated in U.S. dollars. Realized and unrealized gains
and losses are deferred and taken into income over the lives of the hedged items
if permitted by generally accepted accounting principles; otherwise the
contracts are marked to market with any gains and losses reflected in operating
expenses. There were no open foreign exchange contracts at April 30, 1998. At
April 30, 1997, the Company had one contract to sell approximately $6.9 million
of (pound) sterling expiring in May 1997, the market value of which approximated
the contract value. No gains or losses were deferred at April 30, 1998 or 1997.
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 No. 123, "Accounting for Stock-Based
Compensations." 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
recognized generally ratably over the vesting period based on the fair value of
shares.
Cash Equivalents: Cash equivalents consist primarily of highly liquid
investments with a maturity of three months or less and are stated at cost plus
accrued interest, which approximates market value.
New Accounting Standards: The Financial Accounting Standards Board issued the
following Statements of Financial Accounting Standards ("SFAS"), which become
effective for the Company's fiscal 1999 financial statements: SFAS No. 130,
"Reporting Comprehensive Income," which requires disclosure of comprehensive
income and its components, as defined; SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which requires certain financial and
descriptive information about a company's reportable operating statements; and
SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement
Benefits," which requires additional disclosures relating to a company's pension
and postretirement benefit plans. In the opinion of the Company's management,
the adoption of these new accounting standards may require additional
disclosures but should not have a material effect on the consolidated financial
statements of the Company.
Income Per Share
In the third quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
requires the presentation of "basic" income per share which excludes the
dilutive effects of unexercised stock options and nonvested stock awards, and
"diluted" income per share which includes the effects of such items. Prior
periods' income per share have been restated. A reconciliation of the shares
used in the computation follows:
In thousands 1998 1997 1996
- ----------------------------------------------------------------------------
Weighted average shares outstanding 15,969 16,029 16,062
Less: Unearned deferred
compensation shares (196) (209) (167)
- ----------------------------------------------------------------------------
Shares used for basic
income per share 15,773 15,820 15,895
Dilutive effect of stock
options and other stock awards 715 552 643
- ----------------------------------------------------------------------------
Shares used for diluted
income per share 16,488 16,372 16,538
- ----------------------------------------------------------------------------
Acquisitions
In fiscal 1998, the Company acquired the publishing assets of Van Nostrand
Reinhold (VNR) for approximately $28.5 million in cash. VNR publishes in such
areas as architecture / design, environmental / industrial sciences, culinary
arts / hospitality, and business technology. The cost of the acquisition 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 $24 million, relating primarily to acquired publication rights
that are being amortized on a straight-line basis over an estimated average life
of 15 years. In addition, during the year, the Company acquired various
newsletters, books, and journals for purchase prices aggregating approximately
$2 million, which primarily relates to acquired publication rights that are
being amortized over periods ranging from 15 to 30 years.
In fiscal 1997, the Company acquired 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. VCH is a leading
scientific, technical, and professional publisher of journals and books in such
disciplines as chemistry, architecture, and civil engineering. The excess of
cost over the fair value of the tangible assets acquired amounted to
approximately $111.6 million relating to acquired publication rights, which are
being amortized on a straight-line basis over an average life of 30 years. In
addition, during the year, the Company acquired various newsletters including
the publishing assets of Technical Insights, Inc., a publisher of print and
electronic newsletters in various areas of science and technology, for purchase
prices aggregating $4.7 million, which primarily relates to goodwill and is
being amortized on a straight-line basis over 10 years.
In fiscal 1996, the Company acquired Clinical Psychology Publishing Company
(CPPC), a publisher of journals and books in the fields of clinical and
educational psychology; Preservation Press, consisting of architectural heritage
books, technical preservation guides, and children's architecture books; and
certain other smaller publishing properties. In addition, the Company became the
publisher of Cancer, the American Cancer Society's medical journal. The purchase
prices amounted to $4.0 million in cash plus assumed liabilities of $1.3
million. The excess of cost over the fair value of the tangible assets acquired
amounted to approximately $3.7 million, of which $.9 million related to acquired
publication rights, $.2 million related to noncompete agreements, and $2.6
million represented goodwill and other intangibles that are being amortized over
5 to 15 years.
All acquisitions have been accounted for by the purchase method, and the
accompanying financial statements include their results of operations since
their respective dates of acquisition. 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 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. The pro forma effects for the other
acquisitions were not material.
1997 1996
--------------- ---------------
(In thousands, except per share information)
Revenues $ 441,650 $ 424,570
Net Income $ 18,931 $ 17,520
Net Income Per Diluted Share $ 1.16 $ 1.06
Net Income Per Basic Share $ 1.20 $ 1.10
Divested Operations
In fiscal 1998, the Company sold its domestic law publishing program for
$26.5 million, resulting in a gain of $21.3 million. Offsetting this gain are
special asset write-downs and other items amounting to approximately $4.4
million, including write-downs of intangible assets of approximately $3.3
million in accordance with the Company's policy of evaluating such assets, and
if deemed to be permanently impaired, writing them down to net realizable value
based on discounted cash flows. The net effect of these unusual items amounted
to a pretax gain of $16.9 million, or $9.7 million after taxes, equal to $0.59
per diluted share, or $0.62 per basic share.
Inventories
Inventories at April 30 were as follows:
Dollars in thousands 1998 1997
- -------------------------- ---------------- -----------------
Finished Goods $ 38,039 $ 40,859
Work-in-Process 6,864 7,475
Paper, Cloth, and Other 2,084 2,559
- -------------------------- ---------------- -----------------
46,987 50,893
LIFO Reserve (2,075) (1,793)
- -------------------------- ---------------- -----------------
Total $ 44,912 $ 49,100
- -------------------------- ---------------- -----------------
Domestic book inventories aggregating $29.6 and $29.9 million at April 30,
1998 and 1997, respectively, are stated at cost or market, whichever is lower,
using the last-in, first-out method. All other inventories are stated at cost or
market, whichever is lower, using the first-in, first-out method.
Product Development Assets
Product development assets consisted of the following at April 30:
Dollars in thousands 1998 1997
- -------------------------------- -------------- -------------
Composition Costs $25,468 $21,819
Royalty Advances 10,571 9,864
- -------------------------------- -------------- -------------
Total $36,039 $31,683
- -------------------------------- -------------- -------------
Composition costs are net of accumulated amortization of $40,108 in 1998 and
$33,323 in 1997.
Property and Equipment
Property and equipment consisted of the following at April 30:
Dollars in thousands 1998 1997
- ----------------------------------- ------------ -------------
Land and Land Improvements $ 1,542 $ 1,542
Buildings and Leasehold Improvements 17,043 18,222
Furniture and Equipment 64,570 55,622
- ----------------------------------- ------------ -------------
83,155 75,386
Accumulated Depreciation (48,845) (42,687)
- ----------------------------------- ------------ -------------
Total $ 34,310 $ 32,699
- ----------------------------------- ------------ -------------
Intangible Assets
Intangible assets consisted of the following at April 30:
Dollars in thousands 1998 1997
- ------------------------------- ------------- -------------
Acquired Publication Rights $149,977 $132,901
Goodwill and Other Intangibles 52,061 54,283
Non-compete Agreements 1,316 1,435
- ------------------------------- ------------- -------------
203,354 188,619
Accumulated Amortization (30,556) (23,472)
- ------------------------------- ------------- -------------
Total $172,798 $165,147
- ------------------------------- ------------- -------------
Other Accrued Liabilities
Included in other accrued liabilities was accrued compensation of
approximately $20.1 million and $17.7 million for 1998 and 1997, respectively.
Income Taxes
The provision for income taxes was as follows:
Dollars in thousands 1998 1997 1996
- --------------------------- ---------- ---------- -----------
Currently Payable
Federal $6,781 $ 945 $1,122
Foreign $4,332 $5,295 $4,142
State and local $1,166 $1,026 $1,000
- --------------------------- ---------- ---------- -----------
Total Current Provision $12,279 $7,266 $6,264
- --------------------------- ---------- ---------- -----------
Deferred Provision
Federal $6,211 $2,496 $5,270
Foreign $1,629 $ 834 $1,687
State and local $1,379 $ (83) $ 897
- --------------------------- ---------- ---------- -----------
Total Deferred Provision $9,219 $3,247 $7,854
- --------------------------- ---------- ---------- -----------
Total Provision $21,498 $10,513 $14,118
- --------------------------- ---------- ---------- -----------
The Company's effective income tax rate as a percent of pretax income
differed from the U.S. federal statutory rate as shown below:
1998 1997 1996
- ------------------------------------ -------- -------- --------
U.S. Federal Statutory Rate 35.0% 35.0% 35.0%
State and Local Income Taxes
Net of Federal Income Tax Benefit 2.8 2.0 3.2
Tax Benefit Derived From FSC Income (2.7) (4.8) (3.1)
Foreign Source Earnings Taxed at
Other Than U.S. Statutory Rate .6 .3 1.1
Nondeductible Amortization of Intangibles .7 .9 .7
Other-Net .6 .7 (.5)
- ------------------------------------ -------- -------- --------
Effective Income Tax Rate 37.0% 34.1% 36.4%
- ------------------------------------ -------- -------- --------
Deferred taxes result from timing differences in the recognition of revenue
and expense for tax and financial reporting purposes. The components of the
provision for deferred taxes were as follows:
Dollars in thousands 1998 1997 1996
- --------------------------------- -------- --------- ---------
Depreciation and Amortization $(2,898) $(691) $(3,684)
Accrued Expenses (275) 264 6,100
Circulation Costs -- -- 1,471
Provision for Sales Returns and
Doubtful Accounts 5,699 (959) (1,391)
Inventory 1,331 112 578
Retirement Benefits (23) (87) (66)
Divested Operations -- -- (3,386)
Long-Term Liabilities 2,541 1,562 5,102
Alternative Minimum Tax Credit
and Other Carryforwards 236 653 1,869
Net Operating Loss Carryforwards 1,631 (1,150) --
Valuation Allowance 826 2,432 --
Other-Net 151 1,111 1,261
- --------------------------------- -------- --------- ---------
Total Deferred Provision $9,219 $3,247 $7,854
- --------------------------------- -------- --------- ---------
The significant components of deferred tax assets and liabilities were as
follows:
1998 1997
------------------ -------------------
Dollars in thousands Current Long-Term Current Long-Term
- -------------------------------------------------------------------------------
Deferred Tax Assets
Net Operating Loss Carryforward -- 26,131 -- 25,703
Reserve for Sales Returns and
Doubtful Accounts 2,194 -- 8,219 --
Costs Capitalized for Taxes -- 3,054 -- 3,282
Retirement and Post-
Employment Benefits -- 3,470 -- 3,387
Amortization of Intangibles 2,513 -- 1,140
Other -- -- 52 --
- -------------------------------------------------------------------------------
Total Deferred Tax Assets 2,194 35,168 8,271 33,512
Less: Valuation Allowance -- (12,553) -- (13,344)
- -------------------------------------------------------------------------------
Net Deferred Tax Assets 2,194 22,615 8,271 20,168
- -------------------------------------------------------------------------------
Deferred Tax Liabilities
Inventory (1,738) -- (1,128) --
Depreciaton and Amortization -- (4,305) -- (5,149)
Divested Operations -- (196) -- (44)
Accrued Expenses -- (7,002) -- (6,230)
Long-Term Liabilities -- (10,822) -- (8,891)
Other -- (844) -- (1,552)
- -------------------------------------------------------------------------------
Total Deferred Tax Liabilities (1,738) (23,169) (1,128) (21,866)
- -------------------------------------------------------------------------------
Net Deferred Tax Assets (Liability) 456 (554) 7,143 (1,698)
- -------------------------------------------------------------------------------
Approximately $9.3 million of the valuation allowance relates to net
deferred tax assets recorded in connection with the VCH acquisition. Any amounts
realized in future years will reduce the intangible assets recorded at date of
acquisition.
Current taxes payable for 1998 have been reduced by $2.5 million relating
to the utilization of net operating loss carryforwards. At April 30, 1998, the
Company had aggregate unused net operating loss carryforwards of approximately
$61.0 million, which may be available to reduce future taxable income primarily
in foreign tax jurisdictions and generally have no expiration date.
In general, the Company plans to continue to invest the undistributed
earnings of its foreign subsidiaries in those businesses, and therefore no
provision is made for taxes that would be payable if such earnings were
distributed. At April 30, 1998, the undistributed earnings of foreign
subsidiaries approximated $35.8 million and, if remitted currently, would result
in additional taxes approximating $7.1 million.
Notes Payable and Debt
Long-term debt consisted of the following at April 30:
Dollars in thousands 1998 1997
- ------------------------------------------------------------------
Term Loan Notes Payable Due
October 2000 Through 2003 $125,000 $125,000
The weighted average interest rate on the term loan was 6.21% and 5.82%
during 1998 and 1997, respectively; and 6.19% and 5.82% at April 30, 1998 and
1997, respectively.
The Company has a seven-year $175 million credit agreement expiring on
October 31, 2003, with nine banks. The credit agreement consists of a term loan
of $125 million and a $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 as follows:
Dollars in thousands 1999 2000 2001 2002 2003
- -------------------- -------- ------- -------- -------- --------
$ -- $ -- $30,000 $30,000 $30,000
The 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 $71
million was available for such restricted payments as of April 30, 1998.
The Company and its subsidiaries have other short-term lines of credit
aggregating $51 million at various interest rates. Information relating to all
short-term lines of credit follows:
Dollars in thousands 1998 1997 1996
- ----------------------------------------------------------------------
End of Year
Amount outstanding $ -- $ 172 $ --
Weighted average interest rate -- 10.4% --
During the Year
Maximum amount outstanding $ 28,794 $ 26,253 $ 18,909
Average amount outstanding $ 742 $ 11,368 $ 5,960
Weighted average interest rate 8.5% 6.0% 7.0%
- ----------------------------------------------------------------------
Based on estimates of interest rates currently available to the Company for
loans with similar terms and maturities, the fair value of notes payable and
long-term debt approximates the carrying value.
Retirement Plans
The Company and its principal subsidiaries have contributory and
noncontributory retirement plans that cover substantially all employees. The
plans generally provide for employee retirement between the ages of 60 to 65 and
benefits based on length of service and final average compensation, as defined.
In fiscal 1998, the domestic plan was amended to provide that final average
compensation be based on the highest three consecutive years ended December 31,
1994. The Company may, but is not required to, update from time to time the
ending date for the three-year period used to determine final average
compensation. The amendment had the effect of increasing pension expense for
fiscal 1998 by $.2 million. For funded plans, funds are contributed as necessary
to provide for current service and for a portion of any unfunded projected
benefit obligation. To the extent these requirements are exceeded by plan
assets, a contribution may not be made in a particular year. Plan assets consist
principally of investments in corporate stocks and bonds and government
obligations. The unfunded plan primarily relates to a non-U.S. subsidiary and is
governed by local statutory requirements.
Pension costs for the defined benefit plans were as follows:
Dollars in thousands 1998 1997 1996
- ------------------------------------------------------------------
Service Cost $3,432 $2,902 $2,598
Interest Cost on Projected
Benefit Obligation 5,325 4,665 3,757
Return on Assets (15,941) (6,826) (6,331)
Net Amortization and Deferral 9,746 1,014 1,430
- ------------------------------------------------------------------
Net Periodic Pension Expense $2,562 $1,755 $1,454
- ------------------------------------------------------------------
The net pension expense included above for the international plans amounted
to approximately $2.1, $1.5, and $1.1 million for 1998, 1997, and 1996,
respectively.
The following table sets forth the status of the plans and the amounts
recognized in the Company's consolidated statements of financial position.
1998 1997
------------------------ ---------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Dollars in thousands Benefits Assets Benefits Assets
- --------------------------------------------------------------------------------
Fair Value of Plan Assets $ 84,262 $ -- $ 68,385 $ --
Accumulated Benefit Obligation
Vested Benefits (54,769) (10,452) (50,214) (10,462)
Nonvested Benefits (2,810) (537) (3,204) (564)
- --------------------------------------------------------------------------------
(57,579) (10,989) (53,418) (11,026)
Projected Compensation Increases (5,851) (1,317) (3,808) (1,420)
- --------------------------------------------------------------------------------
Projected Benefit Obligation (63,430) (12,306) (57,226) (12,446)
- --------------------------------------------------------------------------------
Funded Status 20,832 (12,306) 11,159 (12,446)
Unrecognized Net Asset (2,907) -- (3,759) --
Unrecognized Prior Service Cost 2,401 365 1,692 447
Unrecognized Net Loss (Gain) (18,738) 102 (7,524) 350
- --------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost $ 1,588 $(11,863) $ 1,568 $(11,649)
- --------------------------------------------------------------------------------
The range of assumptions used in 1998 and 1997 were:
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
- ---------------------------------------------------------------------------
Discount Rate 7.5 - 8.5% 6.5%
Expected Long-Term Rate of Return
on Plan Assets 7.0 - 8.0% --
Rate of Increase in Compensation Levels 0 - 7.0% 3.7%
- ---------------------------------------------------------------------------
The Company has agreements with certain officers and senior management
personnel that provide for the payment of supplemental retirement benefits
during each of the 10 years after the termination of employment. Under certain
circumstances, including a change of control as defined, the payment of such
amounts could be accelerated on a present value basis. The cost of these
benefits is being charged to expense on a present value basis over the estimated
term of employment and amounted to approximately $1.2, $1.1, and $1.0 million in
1998, 1997, and 1996, respectively.
The Company provides life insurance and health care benefits, subject to
certain dollar limitations and retiree contributions, for substantially all of
its retired domestic employees. The cost of such benefits is expensed over the
years that the employees render service and is funded on a pay-as-you-go, cash
basis. The accumulated postretirement benefit obligation amounted to $.3 million
at April 30, 1998 and 1997, and the amount expensed in fiscal 1998 and prior
years was not material.
Commitments and Contingencies
The following schedule shows the composition of rent expense for operating
leases:
Dollars in thousands 1998 1997 1996
- ------------------------------ ---------- ----------- ----------
Minimum Rental 13,137 13,654 12,550
Lease Escalation 2,250 2,188 1,913
Less: Sublease Rentals (50) (19) (19)
- ------------------------------ ---------- ----------- ----------
Total 15,337 15,823 14,444
- ------------------------------ ---------- ----------- ----------
Future minimum payments under operating leases aggregated $78.5 million at
April 30, 1998. Annual payments under these leases are $15.7, $14.4, $14.0,
$13.6, and $13.0 million for fiscal years 1999 through 2003, respectively.
The Company is involved in routine litigation in the ordinary course of its
business. In the opinion of management, the ultimate resolution of all pending
litigation will not have a material effect upon the financial condition or
results of operations of the Company.
Segment Information
The Company operates in one business segment, namely publishing, and
develops, produces, publishes, markets, and services products in print and
electronic formats, such as periodicals including journals and other
subscription-based products, professional and reference works, consumer books,
and textbooks, for the scientific, technical, professional, trade, and
educational markets around the world.
The Company's international operations are located in Europe, Canada,
Australia, and Asia. The following table presents revenues, operating income,
and identifiable assets for the domestic and international operations.
Dollars in thousands 1998 1997 1996
- ---------------------- ------------ ------------ ------------
Revenues
Domestic $322,789 297,152 279,998
Europe 138,320 123,142 70,942
Other International 46,165 47,496 41,357
Interarea transfers (35,816) (29,593) (40,193)
- ---------------------- ------------ ------------ ------------
Total $467,081 431,974 362,704
- ---------------------- ------------ ------------ ------------
Operating Income
Domestic $49,315(a) 20,817 20,180
Europe 13,633 11,728 12,064
Other International (792) 2,252 711
- ---------------------- ------------ ------------ ------------
Total $62,156(a) 34,797 32,955
- ---------------------- ------------ ------------ ------------
Identifiable Assets
Domestic $187,184 178,861 178,442
Europe $174,323 179,210 30,988
Other International 18,002 20,757 19,787
Corporate 79,116 55,284 127,405
- ---------------------- ------------ ------------ ------------
Total $506,914 457,944 284,501
- ---------------------- ------------ ------------ ------------
(a) Includes unusual items amounting to $16,893 relating to the gain on the
sale of the domestic law publishing program, net of a write-down of certain
intangible assets and other items.
Transfers between geographic areas are generally made at a fixed discount
from list price and principally represent sales from the United States to the
Company's international operations. Export sales from the United States to
unaffiliated international customers amounted to approximately $56.5, $51.4, and
$47.5 million in 1998, 1997, and 1996, respectively. The pretax income for
consolidated international operations was approximately $14.1, $16.5, and $13.0
million in 1998, 1997, and 1996, respectively.
Included in operating and administrative expenses were net foreign exchange
gains (losses) of approximately $(.1), $.7, and $.2 million in 1998, 1997, and
1996, respectively.
Changes in the cumulative translation adjustment account were as follows:
Dollars in thousands 1998 1997
----------------------------- ------------ -----------
Balance at beginning of year $ 106 $(3,086)
Aggregate translation
adjustments for the year (646) 3,192
----------------------------- ------------ -----------
Balance at end of year $ (540) $ 106
----------------------------- ------------ -----------
Stock Compensation Plans
Under the Company's Key Employee Stock Plan, qualified employees are
eligible to receive awards that may include stock options, performance stock
awards, and restricted stock awards up to a maximum per year of 3% of Class A
stock outstanding and subject to an overall maximum of 2,000,000 shares through
the year 2000. As of April 30, 1998, approximately 595,520 shares were available
for future grants.
Options granted under the plan may not be less than 100% of the fair market
value of the stock at the date of grant. Options are exercisable, in part or in
full, over a maximum period of 10 years from the date of grant, and generally
vest within five years from the date of the grant. Under certain circumstances
relating to a change of control, as defined, the right to exercise options
outstanding could be accelerated.
The Company elected to apply the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost is recognized for fixed stock
option grants. Had compensation cost been recognized, net income would have been
reduced on a pro forma basis by $.6 million, or $.04 per diluted share, in 1998;
$.4 million, or $.02 per diluted share, in 1997; and $.1 million, or $.01 per
diluted share, in 1996. For the pro forma calculations, the fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for 1998, 1997, and 1996:
risk-free interest rate of 6.5%, 7.1%, and 6.3%, respectively; dividend yield of
1.3%, 1.5%, and 2.0%, respectively; volatility of 18.1%, 22.0%, and 22.2%,
respectively; and expected life of nine years for all years.
A summary of the activity and status of the Company's stock option plans
follows:
1998 1997 1996
-----------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------
Outstanding at beginning
of year 1,041,939 $ 17.87 1,028,663 $ 15.38 1,070,038 $ 12.87
Granted 149,678 34.60 143,349 30.36 133,224 28.76
Exercised (137,583) 14.14 (107,323) 10.84 (157,099) 9.62
Canceled (2,125) 25.89 (22,750) 17.24 (17,500) 15.64
- ----------------------------------------------------------------------------------------
Outstanding at end of year 1,051,909 $ 20.71 1,041,939 $ 17.87 1,028,663 $ 15.38
- ----------------------------------------------------------------------------------------
Exercisable at end of year 540,568 $ 13.51 603,941 $ 12.26 570,170 $ 11.07
- ----------------------------------------------------------------------------------------
The weighted average fair value of options granted during the year was
$12.39 and $12.05 in 1998 and 1997, respectively.
A summary of information about stock options outstanding and options
exercisable at April 30, 1998, follows:
Options Outstanding Options Exercisable
--------------------- ----------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Of Remaining Exercise Of Exercise
Exercise Prices Options Term Price Options Price
- ------------------ --------- ---------- -------- ------- --------
$ 7.88 to $ 12.25 428,162 3.4 years $ 10.10 401,586 $ 9.99
$ 20.69 179,850 6.1 years $ 20.69 82,400 $ 20.69
$ 26.25 to $ 34.50 443,897 8.1 years $ 30.95 56,582 $ 28.02
- ------------------ --------- ---------- -------- ------- --------
Total 1,051,909 5.8 years $ 20.71 540,568 $ 13.51
- ------------------ --------- ---------- -------- ------- --------
Under the terms of the Company's executive long-term incentive plans, upon
the achievement of certain three-year financial performance-based targets,
awards will be payable in restricted shares of the Company's Class A Common
stock. The restricted shares vest equally as to 50% on the first and second
anniversary date after the date the award is earned. Compensation expense is
charged to earnings over the respective three-year period. In addition, the
Company granted restricted shares of the Company's Class A Common stock to key
executive officers and others in connection with their employment. The
restricted shares generally vest one-third at the end of the third, fourth, and
fifth years, respectively, following the date of the grant. Under certain
circumstances relating to a change of control or termination, as defined, the
restrictions would lapse and shares would vest earlier. Compensation expense is
charged to earnings ratably over five years, or sooner if vesting is
accelerated, from the dates of grant. Restricted shares issued in connection
with the above plans amounted to 38,487, 25,638, and 145,658 shares at
weighted-average grant-date fair values of $33.61, $29.00, and $28.11 per share
in 1998, 1997, and 1996, respectively. Compensation expense charged to earnings
for the above amounted to $2.6 million, $1.5 million, and $1.3 million in 1998,
1997, and 1996, respectively.
Under the terms of the Company's Director Stock Plan, each member of the
Board of Directors who is not an employee of the Company is awarded Class A
Common stock equal to 50% of the board member's annual cash compensation, based
on the market value of the stock on the date of the shareholders' meeting.
Directors may also elect to receive all or a portion of their cash compensation
in stock. Under this plan 7,049, 10,274, and 5,752 shares were issued in 1998,
1997, and 1996, respectively. Compensation expense related to this plan amounted
to approximately $.3 million, $.3 million, and $.2 million in 1998, 1997, and
1996, respectively.
Capital Stock and Changes in Capital Accounts
Preferred stock consists of 2,000,000 authorized shares with $1 par value.
To date, no preferred shares have been issued. Common stock consists of
30,000,000 authorized shares of Class A Common, $1 par value, and 12,000,000
authorized shares of Class B Common, $1 par value.
Each share of the Company's Class B Common stock is convertible into one
share of Class A Common stock. The holders of Class A stock are entitled to
elect 30% of the entire Board of Directors and the holders of Class B stock are
entitled to elect the remainder. On all other matters, each share of Class A
stock is entitled to one-tenth of one vote and each share of Class B stock is
entitled to one vote.
Changes in selected capital accounts were as follows:
Common Stock Additional
------------------ Paid-in Treasury
Dollars in thousands Class A Class B Capital Stock
- --------------------------------------------------------------------------------
Balance at April 30, 1995 $16,173 $4,168 $25,446 $(30,538)
Director Stock Plan Issuance -- -- 124 41
Executive Long-Term
Incentive Plan Issuance -- -- 182 60
Purchase of Treasury Shares -- -- -- (3,323)
Restricted Share Issuance -- -- 3,054 948
Issuance of Shares Under
Employee Savings Plan -- -- 674 208
Exercise of Stock Options 157 -- 1,354 (889)
Other 82 (82) 781 --
- -------------------------------------------------------------------------------
Balance at May 1, 1996 $16,412 $4,086 $31,615 $(33,493)
Director Stock Plan Issuance -- -- 217 85
Executive Long-Term
Incentive Plan Issuance -- -- 132 47
Purchase of Treasury Shares -- -- -- (10,506)
Restricted Share Issuance -- -- 337 149
Issuance of Shares Under
Employee Savings Plan -- -- 212 84
Exercise of Stock Options 108 -- 1,056 --
Other 49 (49) 763 4
- -------------------------------------------------------------------------------
Balance at May 1, 1997 $16,569 $4,037 $34,332 $(43,630)
Director Stock Plan Issuance -- -- 217 67
Executive Long-Term
Incentive Plan Issuance -- -- 192 73
Purchase of Treasury Shares -- -- -- (4,281)
Restricted Share Issuance -- -- 1,862 270
Issuance of Shares Under Employee
Savings Plan -- -- 316 101
Exercise of Stock Options 138 -- 3,450 (99)
Other 70 (70) -- --
- -------------------------------------------------------------------------------
Balance at April 30, 1998 $16,777 $3,967 $40,369 $(47,499)
- -------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Results of Operations:
Fiscal 1998 Compared to Fiscal 1997
The Company continued to grow and strengthen its core businesses. In fiscal
1998, the Company sold its domestic law publishing program for $26.5 million,
and reinvested the proceeds by acquiring the publishing assets of Van Nostrand
Reinhold (VNR) for $28.5 million in cash. The domestic law program had limited
potential for the Company. VNR reinforces the Company's strong position in four
core subject areas: architecture / design, environmental / industrial science,
culinary arts / hospitality, and business technology.
Fiscal 1998 income includes unusual items amounting to a pre-tax gain of
$16.9 million, or $9.7 million after taxes, equal to $.59 per diluted share,
relating to the gain on the sale of the domestic law publishing program, net of
a write-down of certain intangible assets and other items.
Revenues increased 8% over the prior year to $467.1 million reflecting
improvement in all of the Company's core businesses. Worldwide revenue increases
over the prior year included 9% for scientific, technical, and medical
publishing; 8% for professional/trade publishing; and 7% for educational
publishing, led by the domestic college division, which increased 9%. The strong
U.S. dollar depressed revenues in some of the Company's overseas markets.
Cost of sales as a percentage of revenues was 35.1% in 1998 compared with
35.9% in the prior year primarily reflecting lower inventory obsolescence
provisions in the current year.
Operating and administrative expenses increased 6.9% over the prior year.
Expenses as a percentage of revenues declined to 53.5%, compared with 54.1% in
the prior year, as the rate of growth in expenses was contained at less than the
revenue growth rate.
Operating income excluding the unusual items mentioned above increased 30%
over the prior year to $45.3 million. Operating income margins increased to 9.7%
of revenue from 8.1% in the prior year, primarily due to the effects of the
higher revenue base and lower operating expenses as a percentage of revenues.
Operating income was adversely affected by weakness in the Company's Asian
markets due to the economic downturn in that region.
Interest expense increased by $1.7 million reflecting a full year of
financing costs related to VCH, which was acquired during fiscal 1997. Interest
income increased by $1.6 million primarily as a result of higher cash balances
compared with the prior year.
The effective tax rate was 37.0% compared with 34.1% in the prior year
primarily reflecting the higher incremental tax rate on the unusual items gain.
Net income, excluding the unusual items net gain of $9.7 million after
taxes, increased 32% to $26.9 million.
Results of Operations:
Fiscal 1997 Compared to Fiscal 1996
The Company continued to expand its global operations and grow its core
businesses.
In fiscal 1997, the Company acquired 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. VCH is a leading
scientific, technical and professional publisher of journals and books in such
disciplines as chemistry, architecture, and civil engineering. During the year,
the Company also acquired various newsletters including the publishing assets of
Technical Insights, Inc., a publisher of print and electronic newsletters in
various areas of science and technology, for purchase prices aggregating $4.7
million.
Revenues for the year advanced 19% to $432.0 million. Excluding VCH,
revenues increased 6% over the prior year driven by the Company's scientific,
technical, and medical journal programs; by its college division; and by its
international operations. The Company's worldwide scientific, technical, and
medical publishing revenues advanced 36% over the prior year, and 9% excluding
VCH. Educational publishing revenues increased 7% and professional/trade
revenues increased marginally over the prior year. Similar to the experience of
other companies in the trade publishing markets, professional/trade results were
adversely affected by a change in a small number of domestic wholesalers and
retailers to just-in-time inventory management policies, which also resulted in
higher returns.
Cost of sales as a percentage of revenues was 35.9% in 1997 compared with
34.9% in the prior year primarily reflecting increased author royalties and
inventory write-offs.
Operating and administrative expenses excluding VCH increased by 3.6% over
the prior year. Expenses declined as a percentage of revenues to 54.1% in 1997
from 54.7%, as the rate of growth in expenses was contained at less than the
revenue growth rate.
Operating income increased 6% over the prior year to $34.8 million
primarily due to the effects of the higher revenue base. Operating income
margins declined to 8.1% of revenue from 9.1% in the prior year primarily due to
the amortization of intangibles related to the VCH acquisition.
Interest expense increased by $5.8 million due to the financing costs
related to the VCH acquisition. Interest income decreased by $3.9 million
primarily as a result of interest received in the prior year on the favorable
resolution of amended tax return claims amounting to $4.4 million.
The effective tax rate was 34.1% compared with 36.4% in the prior year
primarily due to higher tax benefits related to the foreign sales corporation
and lower state and local income taxes.
Net income declined $4.3 million to $20.3 million primarily due to VCH's
acquisition related financing and amortization costs in the current year, as
well as the special income item in the prior year of $2.6 million after taxes,
equal to $.16 per share, related to interest received on the resolution of
amended tax return claims.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance was $127.4 million at the
end of fiscal 1998, compared with $79.1 million at the end of the prior year.
Cash provided by operating activities was $104.0 million in fiscal 1998, an
increase of $40.1 million compared with the prior year.
The Company's operating cash flow is strongly affected by the seasonality
of its domestic college business and receipts from its journal subscriptions.
Receipts from journal subscriptions occur primarily during November and December
from companies commonly referred to as independent subscription agents. These
companies facilitate the journal ordering process by consolidating the
subscription orders/billings of each subscriber with various publishers. Monies
are collected in advance from subscribers by the subscription agents and are
remitted to 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 position and liquidity.
Subscription agents account for approximately 26% of total consolidated revenues
and no one agent accounts for more than 6% of total consolidated revenues.
Sales to the domestic college market tend to be concentrated in June
through August, and again in November through January. Cash disbursements for
inventory are relatively large during the spring in anticipation of these
college sales. The Company normally requires increased funds for working capital
from the beginning of the fiscal year into September. Subject to variations that
may be caused by fluctuations in inventory accumulation or in patterns of
customer payments, the Company's normal operating cash flow is not expected to
vary materially in the near term.
To finance its short-term seasonal working capital requirements and its
growth opportunities, the Company has adequate cash and cash equivalents
available, as well as both domestic and foreign short-term lines of credit, as
more fully described in the note to the consolidated financial statements
entitled "Notes Payable and Debt."
The capital expenditures of the Company consist primarily of investments in
product development and property and equipment. Capital expenditures for fiscal
1999 are expected to increase approximately 25% over 1998, primarily
representing increased investments in product development, including electronic
media products, and computer equipment upgrades to support the higher volume of
business to ensure efficient, quality-driven customer service. These investments
will be funded primarily from internal cash generation or from the liquidation
of cash equivalents.
Effects of Inflation and Cost Increases
Although the impact of inflation is somewhat minimized, as the business
does not require a high level of investment in property and equipment, the
Company does experience continuing cost increases reflecting, in part, general
inflationary factors. To mitigate the effects of cost increases, the Company has
taken a number of initiatives including various steps to lower overall
production and manufacturing costs including substitution of paper grades. In
addition, selling prices have been selectively increased as competitive
conditions permit. The Company anticipates that it will be able to continue this
approach in the future. Paper prices continued to decline during fiscal 1998.
Year 2000 Issues
The Company substantially 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. Since many of the Company's systems are new and
were designed to accommodate the year 2000 coding when originally installed, the
year 2000 issues should not have a material adverse impact on the Company's
operations. It is anticipated that any corrective measures required will be
completed by mid-year of calendar 1999.
New Accounting Standards
The Financial Accounting Standards Board issued the following Statements of
Financial Accounting Standards ("SFAS"), which become effective for the
Company's fiscal 1999 financial statements: SFAS No. 130, "Reporting
Comprehensive Income," which requires disclosure of comprehensive income and its
components, as defined; SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which requires certain financial and
descriptive information about a company's reportable operating statements; and
SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement
Benefits," which requires additional disclosures relating to a company's pension
and postretirement benefit plans. In the opinion of the Company's management,
the adoption of these new accounting standards may require additional
disclosures but should not have a material effect on the consolidated financial
statements of the Company.
"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)
worldwide economic and political conditions; and (vi) other factors detailed
from time to time in the Company's filings with the Securities and Exchange
Commission.
Results by Quarter (Unaudited)
John Wiley & Sons, Inc. and Subsidiaries
Dollars in thousands except per share data
1998 1997
- ---------------------- -------------------- -------------------
Revenues
First quarter $ 112,086 $ 99,217
Second quarter 115,886 107,070
Third quarter 124,350 118,105
Fourth quarter 114,759 107,582
---------------------- -------------------- -------------------
Fiscal year $ 467,081 $ 431,974
---------------------- -------------------- -------------------
Operating Income
First quarter $ 13,711 $ 11,716
Second quarter 10,326 7,189
Third quarter 31,806 (a) 11,913
Fourth quarter 6,313 3,979
---------------------- -------------------- -------------------
Fiscal year $ 62,156 (a) $ 34,797
---------------------- -------------------- -------------------
Net Income
First quarter $ 8,082 $ 7,229
Second quarter 5,639 3,494
Third quarter 18,638 (a) 6,731
Fourth quarter 4,229 2,886
---------------------- -------------------- -------------------
Fiscal year $ 36,588 (a) $ 20,340
---------------------- -------------------- -------------------
Income Per Share Diluted Basic Diluted Basic
--------- ---------- --------- ----------
First quarter $ .49 $ .51 $ .44 $ .45
Second quarter .34 .36 .21 .22
Third quarter 1.12 (a) 1.18 (a) .41 .43
Fourth quarter .25 .27 .18 .18
Fiscal year $ 2.22 (a) $ 2.32 (a) $ 1.24 $ 1.29
---------------------- --------- ---------- --------- ----------
(a) Includes unusual items amounting to a pretax gain of $16,893, or $9,713
after tax, equal to $0.59 per diluted share ($0.62 per basic share)
relating to the gain on the sale of the domestic law publishing program,
net of a write-down of certain intangible assets and other items.
Quarterly Share Prices, Dividends and Related Stockholder Matters
The Company's Class A and Class B shares are listed on the New York
Stock Exchange under the symbols JWA and JWB, respectively. Dividends per share
and the market price range by fiscal quarter for the past two fiscal years were
as follows:
Class A Common Stock Class B Common Stock
---------------------- -----------------------
Market Price Market Price
Divi- -------------- Divi- ---------------
dends High Low dends High Low
------- ------ ------- ------- ------- -------
1998
First quarter $.1125 $34.50 $29.88 $.1000 $35.00 $30.00
Second quarter .1125 44.38 31.50 .1000 44.25 31.63
Third quarter .1125 57.00 44.06 .1000 56.38 44.50
Fourth quarter .1125 56.00 49.31 .1000 56.00 49.06
- ---------------- ------- ------ ------- ------- ------- -------
1997
First quarter $ .10 $35.13 $27.50 $.0875 $34.75 $28.75
Second quarter .10 30.75 27.75 .0875 30.50 28.00
Third quarter .10 32.25 27.50 .0875 32.00 27.50
Fourth quarter .10 31.88 28.13 .0875 31.25 28.75
- ---------------- ------- ------ ------- ------- ------- -------
As of April 30, 1998, the approximate number of holders of the Company's
Class A and Class B Common Stock were 1,274 and 191, respectively, based on the
holders of record and other information available to the Company.
The Company's credit agreement contains certain restrictive covenants
related to the payment of dividends and share repurchases. Under the most
restrictive covenant, approximately $71 million was available for such
restricted payments. Subject to the foregoing, the Board of Directors considers
quarterly the payment of cash dividends based upon its review of earnings, the
financial position of the Company, and other relevant factors.
Selected Financial Data
John Wiley & Sons, Inc. and Subsidiaries
Dollars in thousands except per share data For the years ended April 30
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------- ------------- -------------- -------------- -------------- --------------
Revenues $467,081 $431,974 $362,704 $331,091 $294,289
Operating Income 62,156 (a) 34,797 32,955 26,879 18,883
Net Income 36,588 (a) 20,340 24,680 (b)) 18,311 12,117
Working Capital 59,257 39,783 31,515 11,241 35,059
Total Assets 506,914 457,944 284,501 247,481 243,940
Long-Term Debt 125,000 125,000 -- -- 26,000
Shareholders' Equity 160,751 128,983 117,982 98,832 82,330
- ----------------------------------------- ------------- -------------- -------------- -------------- --------------
Per Share Data
Income Per Share
Diluted 2.22 (a) 1.24 1.49 1.12 .76
Basic 2.32 (a) 1.29 1.55 1.16 .78
Cash Dividends
Class A Common .45 .40 .35 .31 .275
Class B Common .40 .35 .31 .275 .245
Book Value-End of Year 10.05 8.11 7.32 6.21 5.23
- --------------------------------------------------
(a) Fiscal 1998 includes unusual items amounting to a pretax gain of $16,893,
or $9,713 after tax, equal to $0.59 per diluted share ($0.62 per basic
share) relating to the gain on the sale of the domestic law publishing
program, net of a write-down of certain intangible assets and other items.
Excluding the unusual items, operating income would have been $45,263 and
net income would have been $26,875, or $1.63 per diluted share and $1.70
per basic share.
(b) Fiscal 1996 net income includes interest income after taxes of $2.6
million, or $0.16 per diluted and basic share, received on the favorable
resolution of amended tax return claims.
Schedule II
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED APRIL 30, 1998, 1997 AND 1996
(Dollars in Thousands)
Additions
------------------------------
Balance at Charged to Deductions Balance at
Description Beginning Cost & From From End of
of Period Expenses Acquisitions Reserves Period
- ------------------------------------------- ------------- --------------- -------------- --------------- --------------
Year Ended April 30, 1998
Allowance for sales returns(1) $ 27,099 $ 32,945 $ $ 26,633 $ 33,411
Allowance for doubtful accounts $ 7,414 $ 3,445 $ $ 2,694(2) $ 8,165
Year Ended April 30, 1997
Allowance for sales returns(1) $ 20,786 $ 26,396 $ 357 $ 20,440 $ 27,099
Allowance for doubtful accounts $ 6,049 $ 2,591 $ 1,548 $ 2,774(2) $ 7,414
Year Ended April 30, 1996
Allowance for sales returns(1) $ 17,519 $ 17,744 $ 14,477 $ 20,786
Allowance for doubtful accounts $ 5,114 $ 5,499 $ 4,564(2) $ 6,049
- ------------------------------------------------
(1) Allowance for sales returns represents anticipated returns net of inventory
and royalty costs.
(2) Accounts written off, less recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JOHN WILEY & SONS, INC.
---------------------------------
(Company)
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 & Support
Operations Officer
By: /s/ Peter W. Clifford
-----------------------------------
Peter W. Clifford
Senior Vice President, Finance
Corporate Controller
& Chief Accounting Officer
Dated: June 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons constituting
directors of the Company on June 25, 1998.
/s/ Franklin E. Agnew /s/ Henry A. McKinnell, Jr.
- ---------------------------------- -------------------------------------
Franklin E. Agnew Henry A. McKinnell, Jr.
/s/ Warren J. Baker /s/ William J. Pesce
- ---------------------------------- -------------------------------------
Warren J. Baker William J. Pesce
/s/ H. Allen Fernald /s/ William R. Sutherland
- ---------------------------------- -------------------------------------
H. Allen Fernald William R. Sutherland
/s/ Gary J. Fernandes /s/ Thomas M. Taylor
- ---------------------------------- -------------------------------------
Gary J. Fernandes Thomas M. Taylor
/s/ Larry Franklin
- ---------------------------------- -------------------------------------
Larry Franklin Leo J. Thomas
/s/ John S. Herrington /s/ Bradford Wiley II
- ---------------------------------- -------------------------------------
John S. Herrington Bradford Wiley II
/s/ Deborah E. Wiley
- ---------------------------------- -------------------------------------
Chester O. Macey Deborah E. Wiley
/s/ Peter Booth Wiley
-------------------------------------
Peter Booth Wiley