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, publishes, and markets products in print and electronic formats including textbooks, professional and reference works, consumer books, journals, and other subscription-based products, for the educational, scientific, technical, professional and trade markets in the United States and internationally.
Textbooks are produced primarily for use in formal instruction in the college and university markets, as well as the secondary school market in Australia, while professional and reference books, encyclopedias, dictionaries, and periodicals are intended primarily for practicing and research professionals and for libraries. 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. Book publications are primarily in the areas of pure and applied science, engineering, architecture, the social sciences, biomedicine, accounting, law, computer science and business administration. Journal publications are primarily in the scientific and technical, and biomedical research areas.
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.
Subsequent to the fiscal 1996 year-end, the Company acquired a 90% interest in the German based VCH Publishing Group (VCH) for approximately $100 million in cash. VCH publishes nearly 100 scholarly and professional journals, as well as more than 500 books annually, with a backlist of 3,000 titles. VCH is a leading scientific, technical, and professional publisher in chemistry and related disciplines. The group also includes Akademie Verlag, a science and humanities publisher; Ernst & Sohn, an architecture and civil engineering publisher; Academy Group, a London-based architecture and design publisher; and Chemical Concepts, an electronic chemical database publisher.
The company is on the Internet with a World Wide Web site located at http://www.wiley.com.
Domestic Publishing Operations
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 college sales representatives who call upon faculty members responsible for selecting books to be used in courses, and upon the college bookstores which serve such institutions and their students. Approximately 2,400 domestic college bookstore accounts are active customers. 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.
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 in the United States. 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, 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.
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.
The Company also receives licensing revenues from photocopies and electronic reproductions of journal articles and other materials.
Domestic publishing products, other than journals, are distributed from a Company operated warehouse located in Somerset, New Jersey. Journals are mailed to subscribers directly from the independent printers.
International Publishing 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 New York. 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 New York 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 40 foreign languages.
Approximately 41% of the Company's fiscal 1996 revenues were derived from non-U.S. markets.
Publishing Procedures
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. The Company continues to add new titles, revise existing titles, and discontinue the sale of others in the normal course of its business.
Most of the authors of the books and other products published 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.
Materials for publication 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's general practice is to revise its basic textbooks every three to five years, if warranted, and to revise other titles as appropriate. Approximately 36% of the Company's fiscal 1996 domestic book publishing revenues were from titles published or revised in that fiscal year. Subscription-based products, other than journals, are updated more frequently on a regular schedule.
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. Contributions of journal articles transfer publication rights to the Company or professional society, as applicable. Journal revenues represented approximately 31% of the Company's fiscal 1996 revenues.
The Company's publishing business is not dependent upon a single customer, the loss of whom could have a material adverse effect. Approximately 86% of the Company's journal subscription business is sourced through independent subscription agents. These companies facilitate the journal ordering process by consolidating the subscription orders/billings of each subscriber. 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 subscription. Cash receipts from subscription agents are highly dependent on their financial position and liquidity. No one agent accounts for more than 6% of total consolidated revenues.
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.
Like most other publishers, the Company generally contracts with independent printers and binderies for their services. The Company purchases its paper from printers and from independent suppliers. Paper prices have increased over the past few years. 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.
The Company produces electronic versions of some of its products including software, video, CD-ROM, and through on-line services. Approximately 700 products are available in electronic formats, of which 200 are primary stand-alone products with the remainder representing supplemental products in support of other print products. 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.
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 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, with 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 its 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, with the acquisition of VCH, it is the second largest publisher of scientific and technical journals worldwide, as well as the leading commercial chemistry publisher, and one of the three largest publishers of university and college textbooks for the "hardside" disciplines, i.e. engineering, sciences and mathematics.
Employees
As of April 30, 1996, the Company employed approximately 1,830 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, 1996 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 55 1993 and a Director (previously Editor, College Division)
Charles R. Ellis 1988 President and Chief Executive Officer 61 and a Director since June 1990
Stephen A. Kippur 1986 Senior Vice President, Professional, 49 Reference & Trade Publishing Group since July 1990
William J. Pesce 1989 Senior Vice President, Educational & 45 International Publishing Group since February 1996 (previously Senior Vice President, Educational Publishing Group)
Richard S. Rudick 1978 Senior Vice President, General 57 Counsel since June 1989 (previously Vice President, General Counsel and Secretary)
Robert D. Wilder 1986 Senior Vice President, Chief 48 Financial Officer since June 1990
William Arlington 1990 Vice President, Human Resources since 47 June 1990
Peter W. Clifford 1989 Vice President, Finance and 50 Controller since November 1991 (previously Vice President, Controller)
Deborah E. Wiley 1982 Vice President and Director of 50 Corporate Communications since June 1994 and a Director (previously Vice Chairman of the Board)
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.
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. Lease Expiration Ft. Date - ---------------------------------------------------------- Leased- Domestic:
New York, Executive and 230,000 2003 New York Editorial Offices
Somerset, Distribution 170,000 1998 New Jersey Center and Office
Somerset, Warehouse 50,000 2000 New Jersey
Colorado Office 17,000 2000 Springs, Colorado
Leased- Foreign:
Brisbane, Office 16,000 1998 Australia Warehouse 26,000 2000
Toronto, Office 14,000 2001 Canada Warehouse 41,000 1996
Chichester, Office 52,000 2009 England Warehouse 70,000 2012
Asia Office 53,000 1997 and Warehouse
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.
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.
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, 1996.
PART II
Item 5.
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.
Item 6. Selected Financial Data
The Selected Financial Data listed in the attached index is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results 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.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers
The information regarding the Board of Directors on pages 4 to 11 of the 1996 Proxy Statement is incorporated herein by reference, and information regarding Executive Officers appears in Part I of this report.
Item 11.
Item 11. Executive Compensation
The information on pages 12 to 18 of the 1996 Proxy Statement is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information on pages 3, 4, 10, and 11 of the 1996 Proxy Statement is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information on pages 5 to 6 of the 1996 Proxy Statement is incorporated herein by reference.
PART IV
Item 14.
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, 1996.
(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.
3.3 Restated By-Laws dated as of July 1994 (incorporated by reference to the Company's report on Form 10-K for the year ended April 30, 1995).
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 March 30, 1995 among the Company, Morgan Guaranty Trust Company of New York, Chemical Bank, Corestates Bank, N.A., and Morgan Guaranty Trust Company of New York, as Agent (incorporated by reference to the Company's report on Form 10-K for the year ended April 30, 1995).
10.2 Credit Agreement dated as of June 12, 1996 among the Company and the Banks from time to time parties hereto and Morgan Guaranty Trust Company of New York, as Agent.
10.3 1991 Key Employee Stock Plan (incorporated by reference to the Company's Definitive Proxy Statement dated August 8, 1991).
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 10-K for the year ended April 30, 1989).
10.8 1990 Director Stock Plan as Amended and Restated as of June 22, 1995.
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 1995 Executive Long-Term Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended April 30, 1994).
10.12 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).
10.13 Form of the Fiscal Year 1997 Executive Long-Term Incentive Plan.
10.14 Form of the Fiscal Year 1996 Executive Annual Incentive Plan (incorporated by reference to the Company's Report on Form 10-K for the year ended April 30, 1995).
10.15 Form of the Fiscal Year 1997 Executive Annual Incentive Plan.
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 Senior Executive Employment Agreement dated as of July 1, 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 Amendment No. 1 to William J. Pesce'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).
10.23 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).
10.24 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).
10.25 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).
10.26 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).
22 List of Subsidiaries of the Company.
24 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, 1996 and 1995 17
Consolidated Statements of Income and Retained Earnings for the years ended April 30, 1996, 1995 and 1994 18
Consolidated Statements of Cash Flows for the years ended April 30, 1996, 1995 and 1994 19
Notes to Consolidated Financial Statements 20-27
Management's Discussion and Analysis of Financial Condition and Results of Operations 28-30
Results by Quarter (Unaudited) 31
Quarterly Share Prices, Dividends and Related Stockholders Matters 31
Selected Financial Data 32
Schedule II - Valuation and Qualifying Accounts 33
Other schedules are omitted because of absence of conditions under which they apply or because the information required is included in the Notes to the 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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1996 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 12, 1996
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, 1996, 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 June 20, 1996
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
April 30 John Wiley & Sons, Inc. and Subsidiaries Dollars in thousands 1996 1995 ------------------------- Assets Current Assets Cash and cash equivalents $ 55,284 $ 34,410 Accounts receivable 60,276 52,562 Inventories 43,981 41,535 Deferred income tax benefits 7,677 8,004 Prepaid expenses 3,413 4,680 ------------------------- Total Current Assets 170,631 141,191
Product Development Assets 30,282 24,509 Property and Equipment 22,989 21,244 Intangible Assets 52,394 53,351 Other Assets 8,205 7,186 Total Assets $ 284,501 $ 247,481 =========================
Liabilities and Shareholders' Equity Current Liabilities Notes payable and current portion of long-term debt $ - $ 621 Accounts and royalties payable 36,952 34,273 Deferred subscription revenues 71,999 65,749 Accrued income taxes 5,068 4,227 Other accrued liabilities 25,097 25,080 ------------------------- Total Current Liabilities 139,116 129,950 -------------------------
Other Long-Term Liabilities 14,994 13,818 Deferred Income Taxes 12,409 4,881
Shareholders' Equity Common stock issued Class A (16,412,343 and 16,173,270 shares 16,412 16,173 Class B (4,086,482 and 4,168,640 shares) 4,086 4,168 Additional paid-in capital 31,615 25,446 Retained earnings 106,716 87,541 Cumulative translation adjustment (3,086) (2,411) Unearned deferred compensation (4,268) (1,547) ------------------------- 151,475 129,370 Less Treasury shares at cost (Class A-3,503,109 and 3,551,882; Class B-871,024 and 871,024 (33,493) (30,538) ------------------------- Total Shareholders' Equity 117,982 98,832 ------------------------- Total Liabilities and Shareholders' Equity $ 284,501 $ 247,481 =========================
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended April 30 John Wiley & Sons, Inc. and Subsidiaries Dollars in thousands except per share data
1996 1995 1994 ---------------------------------- Revenues $ 362,704 $ 331,091 $ 294,289
Costs and Expenses Cost of sales 126,718 113,142 99,683 Operating and administrative expenses 198,494 186,984 170,000 Amortization of intangibles 4,537 4,086 5,723 ---------------------------------- Total Costs and Expenses 329,749 304,212 275,406 ----------------------------------
Operating Income 32,955 26,879 18,883
Interest Income and Other 6,211 1,768 1,821 Interest Expense (368) (2,854) (3,638) ---------------------------------- Interest Income (Expense)-Net 5,843 (1,086) (1,817)
Income Before Taxes 38,798 25,793 17,066 Provision for Income Taxes 14,118 7,482 4,949 ----------------------------------
Net Income 24,680 18,311 12,117 ---------------------------------- Retained Earnings at Beginning of Year 87,541 74,024 66,080 Cash Dividends Class A Common ($.35, $.31 and $.275 per share) 4,492 3,885 3,358 Class B Common ($.31, $.275 and $.245 per share) 1,013 909 15 ---------------------------------- Total Dividends 5,505 4,794 4,173 ---------------------------------- Retained Earnings at End of Year $ 106,716 $ 87,541 $ 74,024 ================================== Income Per Share
Primary and Fully Diluted $ 1.49 $ 1.12 $ 0.76
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 30 John Wiley & Sons, Inc. and Subsidiaries
Dollars in thousands 1996 1995 1994 ----------------------------------
Operating Activities Net Income $ 24,680 $ 18,311 $ 12,117 Non-cash Items Amortization of intangibles 4,537 4,086 5,723 Amortization of composition costs 15,196 12,285 11,979 Depreciation of property and equipment 7,314 6,589 6,075 Reserves for returns, doubtful accounts and obsolescence 6,586 4,321 3,679 Deferred income taxes 7,873 2,094 (1,499) Other 7,583 5,155 3,295 Changes in Operating Assets and Liabilities Increase in receivables (12,150) (8,337) (11,863) Decrease (increase) in inventories (3,734) (3,962) 758 Increase in accounts and royalties payable 3,821 6,951 5,594 Increase in deferred subscription revenues 4,996 7,596 6,132 Net change in other operating assets and liabilities 1,420 (3,198) (2,256) Cash Provided by Operating Activities 68,122 51,891 39,734 ----------------------------------
Investing Activities Additions to product development assets (26,483) (19,705) (16,827) Additions to property and equipment (9,310) (7,876) (6,504) Proceeds from sale of publishing lines - - 9,210 Acquisition of publishing assets (3,968) (12,268) (8,305) ----------------------------------
Cash Used for Investing Activities (39,761) (39,849) (22,426) ----------------------------------
Financing Activities Purchase of treasury shares (3,323) (212) - Repayment of long-term debt - (32,000) (4,000) Net borrowings (repayments) of short-term debt (624) 522 (21) Cash dividends (5,505) (4,794) (4,173) Proceeds from issuance of stock on option exercises and other 2,289 590 2,815 ---------------------------------- Cash Used for Financing Activities (7,163) (35,894) (5,379) ---------------------------------- Effects of Exchange Rate Changes on Cash (324) 805 (787) ---------------------------------- Cash and Cash Equivalents Increase (Decrease) for Year 20,874 (23,047) 11,142 Balance at Beginning of Year 34,410 57,457 46,315 ---------------------------------- Balance at End of Year $ 55,284 $ 34,410 $ 57,457 ================================== Cash Paid During the Year for Interest $ 647 $ 3,807 $ 3,674 Income Taxes $ 2,799 $ 6,886 $ 3,715
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. Prior year per share data has been restated to reflect the 2-for-1 stock split in October 1995. 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.
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 $26.8 and $22.6 million at April 30, 1996 and 1995, respectively.
Depreciation and Amortization: Furniture and equipment is depreciated principally on the straight-line method over estimated useful lives ranging from 3 to 10 years. Leasehold improvements and capital leases are amortized over the lesser of the estimated useful lives of the assets or the duration of the various leases, using the straight-line method. 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 3 years.
Intangible Assets: Intangible assets consist of acquired publication rights, which are principally amortized based on the projected revenues of titles acquired, non-compete 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 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 would be charged to operating results.
Income Per Share: Income per share is determined by dividing income by the weighted average number of common shares outstanding and common stock equivalents resulting from the assumed exercise of outstanding dilutive stock options and other stock awards less shares assumed to be repurchased with the related proceeds at the average market price for the period for primary earnings per share, and at the higher of the average or end of period market price for fully diluted earnings per share.
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.
Foreign Exchange Contracts: The Company, from time to time, enters into forward exchange contracts as a hedge against its overseas subsidiaries' non- functional currency asset, liability, and commitment exposures. Such exposures include 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, while the foreign subsidiaries' expense structure is denominated in their own functional currencies. 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, and no gains or losses were deferred at April 30, 1996 or 1995.
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: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" for fiscal years beginning after December 15, 1995. The Company intends to adopt SFAS No. 121 in fiscal year 1997, and does not expect the impact on its financial position or its results of operations to be material.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" which requires certain disclosures for fiscal years beginning after December 15, 1995 for those companies that will continue to use an intrinsic value based method for measuring compensation cost in connection with employee stock compensation plans. The Company currently plans to continue to use the intrinsic value based method and will adopt the disclosure requirements in fiscal 1997.
Acquisitions
Subsequent to the fiscal 1996 year-end, the Company acquired a 90% interest in the German based VCH Publishing Group (VCH) for approximately $100 million in cash. VCH has annual revenues of approximately $60 million and publishes nearly 100 scholarly and professional journals, as well as more than 500 books annually, with a backlist of 3,000 titles. VCH is a leading scientific, technical, and professional publisher in chemistry and related disciplines. The group also includes Akademie Verlag, a science and humanities publisher; Ernst & Sohn, an architecture and civil engineering publisher; Academy Group, a London-based architecture and design publisher; and Chemical Concepts, an electronic chemical database publisher.
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 non-compete agreements, and $2.6 million represented goodwill and other intangibles which are being amortized over 5 to 15 years.
In fiscal 1995, the Company acquired the publishing business of Executive Enterprises, Inc., consisting of books, journals and newsletters for environmental management, accounting, law and human resource professionals; ValuSource, which produces specialized business valuation software for accountants, entrepreneurs and corporations; the college engineering list of Houghton Mifflin; the book publishing program of Oliver Wight Publications, Inc., consisting of general management and manufacturing/quality titles; the OS/2 computer-book list of Van Nostrand Reinhold, Inc., and other smaller publishing lists, for purchase prices aggregating $12.3 million in cash plus assumed liabilities of $2.9 million. The excess of cost over the fair value of the tangible assets acquired amounted to approximately $13.5 million, of which $6.7 million related to acquired publication rights, $.5 million related to non-compete agreements, and $6.3 million represented goodwill and other intangibles which are being amortized over 10 to 15 years.
In fiscal 1994, the Company acquired the professional computer book line of QED Information Services in the United States; Belhaven Press, which publishes earth and environmental science titles in the United Kingdom; and the Company's joint venture partner's 30% minority interest in Protocols, which publishes life science continuity products, for purchase prices aggregating $8.3 million. The excess of cost over the fair value of the tangible assets acquired amounted to approximately $6.9 million, of which $.5 million related to acquired publication rights, $.3 million related to non-compete agreements, and $6.1 million represented goodwill and other intangibles which are being amortized over 15 years.
The fiscal 1996 and prior 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 proforma effects on the results of operations for these acquisitions were not material.
Divested and Restructured Operations
In fiscal 1994, the Company divested its Canadian high school and Australian primary school and certain agency lines for aggregate proceeds of $9.2 million, resulting in a gain of $1.8 million, or $1.3 million after taxes. In addition, in a cost saving initiative, the Company restructured and consolidated certain distribution and information technology support functions which resulted in an unusual charge of $1.8 million, or $1.1 million after taxes. The net effect of the divestitures and restructurings amounted to an after-tax gain of $.2 million, or $.01 per share in fiscal 1994.
Inventories
Inventories at April 30 were as follows: Dollars in thousands 1996 1995 -------------------------- Finished Goods $ 39,616 $ 36,467 Work-in-Process 4,865 5,762 Paper, Cloth and Other 3,026 2,769 -------------------------- 47,507 44,998 LIFO Reserve (3,526) (3,463) -------------------------- Total $ 43,981 $ 41,535 --------------------------
Domestic book inventories aggregating $32.2 and $29.0 million at April 30, 1996 and 1995, 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 1996 1995 -------------------------- Composition Costs $ 21,505 $ 16,685 Royalty Advances 8,777 7,824 -------------------------- Total $ 30,282 $ 24,509 --------------------------
Composition costs are net of accumulated amortization of $27,199 in 1996 and $23,014 in 1995.
Property and Equipment
Property and equipment consisted of the following at April 30:
Dollars in thousands 1996 1995 -------------------------- Furniture and Equipment $ 45,765 $ 42,974 Leasehold Improvements 12,045 11,382 -------------------------- 57,810 $ 54,356 Accumulated Depreciation (34,821) (33,112) -------------------------- Total $ 22,989 $ 21,244 --------------------------
Intangible Assets
Intangible assets are stated at cost, net of accumulated amortization, and consisted of the following at April 30:
Dollars in thousands 1996 1995 -------------------------- Goodwill and Other Intangibles $ 43,752 $ 43,273 Acquired Publication Rights 8,007 9,037 Non-compete Agreements 635 1,041 -------------------------- Total $ 52,394 $ 53,351 -------------------------- Other Accrued Liabilities
Included in other accrued liabilities is accrued compensation of approximately $13.5 and $13.3 million for 1996 and 1995, respectively.
Income Taxes
The provision for income taxes was as follows:
Dollars in thousands 1996 1995 1994 --------------------------------- Currently Payable Federal $ 1,122 $ 1,184 $ 1,471 Foreign 4,142 3,675 4,772 State and local 1,000 314 115 ------------------------------- Total Current Provision 6,264 5,173 6,358 ------------------------------- Deferred Provision Federal 5,270 1,716 (174) Foreign 1,687 451 (1,277) State and Local 897 142 42 ------------------------------- Total Deferred Provision (Benefit) 7,854 2,309 (1,409) ------------------------------- Total Provision $ 14,118 $ 7,482 $ 4,949 -------------------------------
The Company's effective income tax rate as a percent of pre-tax income differed from the U.S. federal statutory rate as shown below:
1996 1995 1994 ------------------------------ U.S. Federal Statutory Rate 35.0% 35.0% 35.0% State and Local Income Taxes Net of Federal Income Tax Benefit 3.2 .8 .4 Tax Benefit Derived from FSC Income (3.1) (6.1) (4.8) Foreign Source Earnings Taxed at Other than U.S. Statutory Rate 1.1 (1.0) (2.1) Nondeductible Amortization of Intangibles .7 1.1 1.7 Other-Net (.5) (.8) (1.2) ----------------------------- Effective Income Tax Rate 36.4% 29.0% 29.0% -----------------------------
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 1996 1995 1994 -------------------------------------- Depreciation and Amortization $(3,684) $ 1,451 $ 6 Accrued Expenses 6,100 1,197 715 Circulation Costs 1,471 1,614 (1,800) Provision for Sales Returns and Doubtful Accounts (1,391) (255) 547 Inventory 578 (1,150) 1,076 Retirement Benefits (66) (224) 116 Divested Operations (3,386) _ _ Long-Term Liabilities 5,102 _ 329 Alternative Minimum Tax Credit and Other Carryforwards 1,869 (722) (1,770) Tax Law Rate Change _ _ (470) Other-Net 1,261 398 (158) -------------------------------------- Total Deferred Provision (Benefit) $ 7,854 $ 2,309 $ (1,409) --------------------------------------
The significant components of deferred tax assets and liabilities were as follows:
1996 1995 Dollars in thousands Current Long-Term Current Long-Term -------------------------------------------- Deferred Tax Assets Reserve for Sales Returns and doubtful Accounts $ 7,100 $ _ $ 5,603 $ _ Circulation and Other Costs Capitalized for Taxes _ 2,951 _ 3,624 Retirement and Post- Employment Benefit _ 2,517 _ 2,510 Alternative Minimum Tax Credit and Other Carryforwards (252) _ 1,315 _ Accrued Compensation 192 _ 1,592 Accrued Liabilities and Other 30 _ 213 --------------------------------------- Total Deferred Tax Assets 7,070 5,468 8,723 6,134 --------------------------------------- Deferred Tax Liabilities Depreciation and amortization _ (3,278) _ (6,954) Divested Operations _ 248 _ (2,156) Accrued Expenses _ (5,664) _ _ Long-Term Liabilities _ (6,557) _ (83) Other 607 (2,626) (719) (1,822) --------------------------------------- Total Deferred Tax liabilities 607 (17,877) (719) (11,015) --------------------------------------- Net Deferred Tax Asset (Liability) $ 7,677 $(12,409) $ 8,004 $(4,881) ---------------------------------------
In fiscal 1996, the Company received approximately $6 million of net federal, state and local tax refunds including interest on the favorable resolution of amended tax return claims of prior years primarily relating to timing differences. Net income for fiscal 1996 includes interest income related thereto of $4.4 million, or $2.6 million after taxes, equal to $.16 per share.
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 which would be payable if such earnings were distributed. At April 30, 1996, the undistributed earnings of foreign subsidiaries approximated $26.3 million and, if remitted currently, would result in additional taxes approximating $1.8 million.
Notes Payable and Debt
The Company has a revolving credit agreement with three banks providing a line of credit of $50 million until March 30, 2000. The Company has the option of borrowing Eurodollars at a rate based on the London Interbank Offered Rate (LIBOR) or dollars at the banks' prime rate or at a rate based on the current certificate of deposit rate. A facility fee ranging from .125% to .25% depending on certain coverage ratios is charged on the total commitment. 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. The Company and its subsidiaries also have other short-term lines of credit aggregating $51 million at various interest rates. Information relating to short-term lines of credit follows:
Dollars in thousands 1996 1995 1994 ------------------------------------- End of Year Amount outstanding $ _ $ 621 $ 79 Weighted average interest rate _ 8.5% 7.3% During the Year Maximum amount outstanding $ 18,909 $ 1,351 $ 7,390 Average amount outstanding $ 5,960 $ 529 $ 1,184 Weighted average interest rate 7.0% 8.7% 7.0% -------------------------------------
The Company's revolving credit agreement contains certain restrictive covenants related to minimum net worth, funded debt levels, financial ratios, and restricted payments, including a cumulative limitation for dividends paid. Under the most restrictive covenant, approximately $48 million was available for the payment of future dividends as of April 30, 1996. Subsequent to the fiscal 1996 year-end, the Company obtained bridge financing for the VCH acquisition by entering into a credit agreement with a bank and its assigns providing a line of credit of $75 million thru June 11, 1997 on terms similar to the above mentioned revolving credit agreement.
In fiscal 1995, the Company prepaid the remaining $26 million of the 10.31% long-term notes outstanding. Although the Company incurred prepayment costs of $1.6 million, which was included in interest income and other, the Company benefits by eliminating the negative interest rate spread between the higher interest rate on the debt retired compared with the current interest rates being earned on short-term investments. Also included in interest income and other were a gain of $1.5 million related to the sale of shares of Nippon Wilson Learning which were received in connection with the sale of the Company's training business in fiscal 1991.
Retirement Plans
The Company and its principal subsidiaries have contributory and noncontributory retirement plans which 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 1995, the domestic plan was amended to provide that final average compensation be based on the highest three consecutive years ended December 31, 1993. 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 1995 by approximately $.2 million. 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.
Pension costs for the defined benefit plans were as follows:
Dollars in thousands 1996 1995 1994 ----------------------------------- Service Cost $ 2,598 $ 2,418 $ 2,095 Interest Cost on Projected Benefit Obligation 3,757 3,440 3,073 Return on Assets (6,331) (2,937) (3,685) Net Amortization and Deferral 1,430 (1,764) (731) ----------------------------------- Net Periodic Pension Expense $ 1,454 $ 1,157 $ 752 -----------------------------------
The net pension expense included above for the international plans amounted to approximately $1.1, $1.0, and $1.0 million for 1996, 1995, and 1994, respectively.
The following table sets forth the status of the plans and the amounts recognized in the Company's consolidated statements of financial position.
1996 1995 Domestic Int'l. Domestic Int'l. Dollars in thousands Plan Plans Plan Plans ------------------------------------------ Fair Value of Plan Assets $ 41,846 $ 19,230 $ 37,340 $ 15,978 Accumulated Benefit Obligation Vested Benefits (31,789) (13,835) (29,758) (11,579) Nonvested Benefits (2,728) (99) (2,456) (91) ------------------------------------------ (34,517) (13,934) (32,214) (11,670) Projected Compensation Increases (809) (2,631) (728) (2,696) ------------------------------------------ Projected Benefit Obligation (35,326) (16,565) (32,942) (14,366) ------------------------------------------ Funded Status 6,520 2,665 4,398 1,612 Unrecognized Net Asset (2,991) (1,433) (3,590) (1,737) Unrecognized Prior Service Cost 1,018 1,247 105 1,456 Unrecognized Net Loss (Gain) (3,578) (3,118) 362 (2,408) ------------------------------------------ Prepaid (Accrued) Pension Cost $ 969 $ (639) $ 1,275 $ (1,077) ------------------------------------------
The range of assumptions used in 1996 and 1995 were:
1996 1995 Domestic Int'l. Domestic Int'l. Plan Plans Plan Plans --------------------------------------- Discount Rate 7.5% 8.5% 7.5% 8.5% Expected Long-Term Rate of Return on Plan Assets 8.0% 7.0-8.0% 8.0% 7.0-8.0% Rate of Increase in Compensation Levels _% 5.5-7.0% _% 5.5-7.0% ---------------------------------------
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 $1.0, $.9 and $.7 million in 1996, 1995 and 1994, 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 are funded on a pay-as-you-go, cash basis. The accumulated post-retirement benefit obligation amounted to $.3 and $.2 million at April 30, 1996 and 1995, respectively, and the amount expensed in fiscal 1996 and prior years was not material.
Commitments and Contingencies
The following schedule shows the composition of rent expense for operating leases:
Dollars in thousands 1996 1995 1994 ----------------------------------------- Minimum Rental $ 12,550 $ 12,202 $ 11,885 Lease Escalation 1,913 1,848 1,756 Less: Sublease Rentals (19) (63) (55) ----------------------------------------- Total $ 14,444 $ 13,987 $ 13,586 -----------------------------------------
Future minimum payments under operating leases aggregated $97.2 million at April 30, 1996. Annual payments under these leases are $14.4, $13.4, $13.1, $12.9, and $12.4 million for fiscal years 1997 through 2001, respectively. The Company is guarantor through 1998 of certain lease obligations assumed by the buyer of the domestic training operations which were divested in fiscal 1991, aggregating approximately $2.0 million, which is net of the 50% guarantee provided by the parent of the buyer. 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, publishes and markets products in print and electronic formats including textbooks, professional and reference works, consumer books, and periodicals including journals and other subscription- based products, for the educational, scientific, technical, professional and trade 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 1996 1995 1994 ------------------------------------ Revenues Domestic $ 279,998 $ 258,464 $ 229,061 International 112,299 102,907 89,235 Interarea transfers (29,593) (30,280) (24,007) ------------------------------------ Total $ 362,704 $ 331,091 $ 294,289 ------------------------------------ Operating Income Domestic $ 20,180 $ 15,242 $ 8,957 International 12,775 11,637 9,926 ------------------------------------ Total $ 32,955 $ 26,879 $ 18,883 ------------------------------------ Identifiable Assets Domestic $ 178,442 $ 166,478 $ 144,624 International 50,775 46,593 41,859 Corporate 55,284 34,410 57,457 -------------------------------------- Total $ 284,501 $ 247,481 $ 243,940 -------------------------------------- [FN] Includes a pretax unusual items gain of $1,819 in international operations and a pretax unusual items charge of $1,768 in domestic operations in 1994.
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 $47.5, $41.2 and $33.9 million in 1996, 1995 and 1994, respectively. The pre-tax income for consolidated international operations was approximately $13.0, $11.6 and $10.0 million in 1996, 1995 and 1994, respectively.
Included in operating and administrative expenses were net foreign exchange gains (losses) of approximately $.2, $(.2) and $.2 million in 1996, 1995 and 1994, respectively.
Changes in the cumulative translation adjustment account were as follows:
Dollars in thousands 1996 1995 ------------------------------ Balance, May 1 $ (2,411) $ (3,805) Aggregate Translation Adjustments for the Year (675) 1,394 ------------------------------ Balance, April 30 $ (3,086) $ (2,411) ------------------------------
Stock Option and Other Plans
Options were granted on the Company's Class A Common stock and are exercisable, in part or in full, over a maximum period of 10 years from the date of grant under various stock option plans. Outstanding options were granted at prices not less than 100% of the fair market value of the stock at the date the options were granted. Under certain circumstances relating to a change of control, as defined, the right to exercise options outstanding could be accelerated.
Option activity under existing plans was as follows:
1996 1995 ----------------------------- Outstanding at Beginning of Year 1,070,038 878,192 Granted 133,224 285,800 Exercised (157,099) (69,402) Canceled (17,500) (24,552) ------------------------------ Outstanding at End of Year 1,028,663 1,070,038 ------------------------------ Exercisable at End of Year 570,170 595,754 Available for Future Grant 1,229,592 1,356,568 Price Range of Options Exercised $ 6.75 to 28.25 $ 7.00 to 20.69 Price Range of Options Outstanding $ 6.75 to 31.63 $ 6.75 to 26.25
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 cash and/or restricted shares of the Company's Class A Common stock at the end of the plan cycle. The restricted shares vest equally as to 50% on the first and second anniversary date after the date the award is earned. The amount charged to expense for such plans was approximately $.9, $.8 and $.7 million in 1996, 1995 and 1994, respectively. Restricted shares earned under the plans amounted to 8,650, 11,084 and 33,640 in 1996, 1995 and 1994, respectively.
In both fiscal 1996 and 1995, the Company granted in each year a total of 90,000 restricted shares of the Company's Class A Common stock to four key executive officers in connection with their employment agreements. The restricted shares 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 aggregating $4.4 million is being charged to earnings ratably over five years, or sooner if vesting is accelerated, from the dates of grant, and amounted to $.9 and $.3 million in fiscal 1996 and 1995, 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 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. Compensation cost related to this plan charged to expense amounted to approximately $.2 million in 1996, 1995 and 1994, respectively. Under this plan 5,752, 8,662 and 13,692 shares were issued in 1996, 1995, and 1994, 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: Additional Common Stock Paid-In Treasury Dollars in thousands Class A Class B Capital Stock -------------------------------------------- Balance May 1, 1993 $ 7,873 $ 2,102 $ 29,114 $(31,159) Director Stock Plan Issuance _ _ 64 94 Executive Long-Term Incentive Plan Issuance _ _ 174 230 Exercise of Stock Options 161 _ 2,852 (198) Other 11 (11) 804 _ ---------------------------------------------- Balance April 30, 1994 $ 8,045 $ 2,091 $ 33,008 $ (31,033) Restricted Share Issuance _ _ 1,266 618 Director Stock Plan Issuance _ _ 124 59 Executive Long-Term Incentive Plan Issuance _ _ 162 76 Exercise of Stock Options 35 _ 601 (46) Purchase of Treasury Shares _ _ _ (212) Other 7 (7) 455 _ Retroactive effect of 2 for 1 stock split 8,086 2,084 (10,170) _ ---------------------------------------------- Balance 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 April 30, 1996 $ 16,412 $ 4,086 $ 31,615 $(33,493) ---------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations: Fiscal 1996 Compared to Fiscal 1995
In 1996, the Company continued to expand its global operations and grow its core businesses, while at the same time improving its profitability, cash flows and return on investment.
The Company invested a total of $4.0 million during the year to acquire the 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. The Company also became the publisher of Cancer, the American Cancer Society's medical journal.
Subsequent to the fiscal 1996 year-end, the Company acquired a 90% interest in the German based VCH Publishing Group (VCH) for approximately $100 million in cash. VCH has annual revenues of approximately $60 million and publishes nearly 100 scholarly and professional journals, as well as more than 500 books annually, with a backlist of 3,000 titles. VCH is a leading scientific, technical, and professional publisher in chemistry and related disciplines. The group also includes Akademie Verlag, a science and humanities publisher; Ernst & Sohn, an architecture and civil engineering publisher; Academy Group, a London-based architecture and design publisher; and Chemical Concepts, an electronic chemical database publisher. The Company currently anticipates that the acquisition will dilute income per share for approximately two years following the acquisition. The extent and duration of the dilution will depend primarily on the amortization of intangibles, financing costs, and VCH's future operating results.
Revenues for the year advanced 10% to $362.7 million led by the Company's worldwide scientific, technical and medical journal programs, college texts and the professional/trade computer and business book lines. The domestic scientific, technical and medical division registered a 14% increase in revenues and the domestic professional/trade division revenues increased 9% over the prior year. The domestic college division again outperformed the industry as a whole with a 9% increase in revenues over the prior year. The international divisions also registered a 9% improvement in revenues paced by European and Asian operations.
Cost of sales as a percentage of revenues was 34.9% in 1996 compared with 34.2% in the prior year primarily reflecting increased paper costs.
Operating and administrative expenses increased by 6.2% but declined as a percentage of revenues to 54.7% in 1996 from 56.5% as the rate of growth in expenses was contained at less than the revenue growth rate.
Operating income increased 23% over the prior year to $33.0 million primarily due to the effects of the higher revenue base coupled with a cost contained infrastructure. Operating income margins improved to 9.1% of revenue from 8.1% in the prior year.
Net interest income increased by $6.9 million over the prior year primarily as a result of interest received on the favorable resolution of amended tax return claims amounting to $4.4 million, or $2.6 million after taxes, equal to $.16 per share. The improvement was also due to the prepayment of high cost long-term debt at the end of fiscal 1995.
The effective tax rate was 36.4% compared with 29.0% in the prior year due to higher effective tax rates on state, local and foreign sourced earnings.
Results of Operations: Fiscal 1995 Compared to Fiscal 1994
The Company invested $12.3 million during the year to acquire the publishing business of Executive Enterprises, Inc., consisting of books, journals and newsletters for environmental management, accounting, law and human resource professionals; ValuSource, which produces specialized business valuation software for accountants, entrepreneurs and corporations; the college engineering list of Houghton Mifflin; the book publishing program of Oliver Wight Publications, Inc., consisting of general management and manufacturing/quality titles; and the OS/2 computer-book list of Van Nostrand Reinhold, Inc.
Revenues for the year advanced 13% to $331.1 million led by the domestic professional and trade division, where revenues increased 20% based on the strength of the business and computer-book lines. The domestic scientific, technical and medical division registered a 10% improvement attributable to increased journal revenues. The domestic college division increased its market share and outperformed the industry as a whole in what was considered a difficult market environment. International revenues reflected significant increases over the prior year led by the Company's European and Asian operations.
Cost of sales as a percentage of revenues was 34.2% in 1995 compared with 33.9% in the prior year primarily reflecting increased paper costs.
Operating and administrative expenses as a percentage of revenues declined to 56.5% in 1995 from 57.8% as the rate of growth in expenses was contained at less than the revenue growth rate. This improvement was offset to some degree by unfavorable foreign exchange rates.
Operating income increased 42% over the prior year to $26.9 million as revenues increased at a greater rate than operating expenses.
Interest expense declined by $.8 million due to the repayment of long-term debt. The effective tax rate was 29% in both years due to the benefits derived from lower taxed foreign source earnings.
Net income increased 51% over 1994 due to the operating income gains and lower interest expense. Liquidity and Capital Resources
The Company's cash and cash equivalents balance was $55.3 million at the end of fiscal 1996, compared with $34.4 at the end of the prior year. Cash provided by operating activities was $68.1 million in fiscal 1996, an increase of $16.2 million over the prior year, of which approximately $6 million resulted from tax refunds and interest received on the favorable resolution of amended tax return claims of prior years.
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. 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 subscription. Remittances are highly dependent upon the financial position and liquidity of such companies.
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 acquisition of the VCH Publishing Group will be financed by new debt facilities.
The capital expenditures of the Company consist primarily of investments in product development and property and equipment. Capital expenditures for fiscal 1997 are expected to increase approximately 10% over 1996, 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. Fiscal 1996 and 1995 witnessed an increase in paper prices after years of a stable to decreasing price environment. To mitigate the effects of paper and other 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.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long- lived Assets and for Long-lived Assets to be Disposed Of" for fiscal years beginning after December 15, 1995. The Company intends to adopt SFAS No. 121 in fiscal year 1997, and does not expect the impact on its financial position or its results of operations to be material.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" which requires certain disclosures for fiscal years beginning after December 15, 1995 for those companies that will continue to use an intrinsic value based method for measuring compensation cost in connection with employee stock compensation plans. The Company currently plans to continue to use the intrinsic value based method and will adopt the disclosure requirements in fiscal 1997.
Results by Quarter (Unaudited)
John Wiley & Sons, Inc. and Subsidiaries Dollars in thousands except per share data
1996 1995 ---------------------------- Revenues First quarter $ 88,092 $ 80,787 Second quarter 86,831 78,558 Third quarter 97,409 91,930 Fourth quarter 90,372 79,816 ---------------------------- Fiscal year $ 362,704 $ 331,091 --------------------------- Operating Income First quarter $ 11,496 $ 10,450 Second quarter 7,119 5,652 Third quarter 10,710 10,240 Fourth quarter 3,630 537 --------------------------- Fiscal year $ 32,955 $ 26,879 --------------------------- Net Income First quarter $ 7,118 $ 6,067 Second quarter 4,240 3,082 Third quarter1 9,835 6,530 Fourth quarter 3,487 2,632 -------------------------- Fiscal year $ 24,680 $ 18,311 -------------------------- Income Per Share Primary and Fully Diluted First quarter $ .43 $ .37 Second quarter .26 .19 Third quarter1 .59 .40 Fourth quarter .21 .16
Fiscal year $ 1.49 $ 1.12
1 Includes interest income after taxes in 1996 of $2.6 million, equal to $.16 per share, relating to interest received on the favorable resolution of amended tax return claims.
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 Divi- Market Price Divi- Market Price dends High Low dends High Low -------------------------------------------------------- First quarter $.0875 $28.75 $27.13 $.0775 $29.00 $27.75 Second quarter .0875 30.50 27.13 .0775 30.00 28.00 Third quarter .0875 35.00 28.88 .0775 34.75 28.75 Fourth quarter .0875 35.00 29.63 .0775 34.63 29.50 -------------------------------------------------------- First quarter $.0775 $21.63 $20.50 $.06875 $21.25 $20.50 Second quarter .0775 22.13 20.13 .06875 21.75 20.38 Third quarter .0775 25.75 21.38 .06875 25.63 21.38 Fourth quarter .0775 28.00 25.13 .06875 27.75 25.25 --------------------------------------------------------
As of April 30, 1996, the approximate number of holders of the Company's Class A and Class B Common Stock were 1,278 and 200, respectively, based on the holders of record and other information available to the Company.
The Company's revolving credit agreements contain certain restrictive covenants related to the payment of dividends. Under the most restrictive covenant, approximately $48 million was available for the payment of future dividends. 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
Schedule II
JOHN WILEY & SONS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(Dollars in Thousands)
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/ Charles R. Ellis ---------------------------------------- Charles R. Ellis President and Chief Executive Officer
By: /s/ Robert D. Wilder ---------------------------------------- Robert D. Wilder Executive Vice President and Chief Financial & Operations Officer
By: /s/ Peter W. Clifford ---------------------------------------- Peter W. Clifford Senior Vice President, Finance Corporate Controller & Chief Accounting Officer
Dated: June 20, 1996
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 20, 1996.
- ----------------------------- ---------------------------- Franklin E. Agnew Chester O. Macey
/s/ Warren J. Baker /s/ William R. Sutherland - ----------------------------- ---------------------------- Warren J. Baker William R. Sutherland
/s/ Charles R. Ellis - ----------------------------- ---------------------------- Charles R. Ellis Thomas M. Taylor
/s/ H. Allen Fernald /s/ Leo J. Thomas - ----------------------------- ---------------------------- H. Allen Fernald Leo J. Thomas
/s/ Gary J. Fernandes /s/ Bradford Wiley II - ----------------------------- ---------------------------- Gary J. Fernandes Bradford Wiley II
/s/ Larry Franklin /s/ Deborah E. Wiley - ----------------------------- ---------------------------- Larry Franklin Deborah E. Wiley
/s/ John S. Herrington /s/ Peter Booth Wiley - ----------------------------- ---------------------------- John S. Herrington Peter Booth Wiley