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JW-A > SEC Filings for JW-A > Form 10-Q on 12-Dec-2011All Recent SEC Filings

Show all filings for WILEY JOHN & SONS, INC.

Form 10-Q for WILEY JOHN & SONS, INC.


12-Dec-2011

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS - SECOND QUARTER ENDED OCTOBER 31, 2011

Throughout this report, references to amounts "excluding foreign exchange", "currency neutral basis" and "performance basis" exclude both foreign currency translation effects and transactional gains and losses. Foreign currency translation effects are based on the change in average exchange rates for each reporting period multiplied by the current period's volume of activity in local currency for each non-U.S. location. The variance explanations below are on a currency neutral basis unless otherwise noted.

Revenue and Gross Profit:

Revenue for the second quarter of fiscal year 2012 increased 1% to $447.0 million, but was flat excluding the favorable impact of foreign exchange. On a currency neutral basis, growth in Scientific, Technical, Medical and Scholarly ("STMS") was offset by declines in Professional/Trade ("P/T") and Global Education ("GEd"). Gross profit margin for the second quarter of fiscal year 2012 of 70.3% was 190 basis points higher than prior year, or 180 basis points excluding the favorable impact of foreign exchange. The improvement was mainly driven by lower royalty costs due to timing and product mix, including higher digital revenue.

Operating and Administrative Expenses:

Operating and administrative expenses for the second quarter of fiscal year 2012 of $233.3 million were 8% higher than prior year, or 6% excluding the unfavorable impact of foreign exchange. On a currency neutral basis, the increase was mainly driven by higher technology costs ($5 million) to support investments in digital products and infrastructure; higher employment costs ($5 million); higher rent and facility costs ($2 million) and other, mainly higher journal editorial cost ($2 million).

Operating Income:

Operating income for the second quarter of fiscal year 2012 decreased 7% to $72.0 million, or 9% excluding the favorable impact of foreign exchange. On a currency neutral basis, the decline was driven by higher operating and administrative expenses to support business growth, partially offset by higher gross profit margins.

Other:

Interest expense for the second quarter of fiscal year 2012 decreased $3.1 million to $1.8 million. Lower interest rates and lower average debt contributed approximately $1.8 million and $1.3 million to the decrease, respectively. Losses on foreign currency transactions for the second quarters ended October 31, 2011 and 2010 were $0.7 million and $0.1 million, respectively. Interest income and other for the second quarter of fiscal year 2012 increased $0.8 million to $1.3 million mainly due to a $0.7 million favorable copyright infringement settlement recognized by the Company.

Provision for Income Taxes:

The effective tax rate for the second quarter of fiscal year 2012 was 28.2% compared to 26.8% in the prior year. The increase was mainly due to lower tax benefits on non-U.S. earnings.

Earnings Per Share:

Earnings per diluted share for the second quarter of fiscal year 2012 decreased 6% to $0.83, including and excluding the impact of foreign exchange.


Second Quarter Segment Results

Scientific, Technical, Medical and Scholarly (STMS):

                               For the Three Months
                                 Ended October 31,                     % change
Dollars in thousands                2011        2010   % change          w/o FX

Journal Subscriptions            $160,133   $154,058         4%              2%
Books                              44,073     44,517        -1%             -2%
Other Publishing Income            46,864     46,307         1%             -1%
Total Revenue                    $251,070   $244,882         3%              1%

Gross Profit                      185,837    176,764         5%              3%
Gross Profit Margin                 74.0%      72.2%

Direct Expenses & Amortization     78,655     73,613         7%              5%

Direct Contribution to Profit    $107,182   $103,151         4%              2%
Direct Contribution Margin          42.7%      42.1%

Revenue:

STMS revenue for the second quarter of fiscal year 2012 increased 3% to $251.1 million, or 1% excluding the favorable impact of foreign exchange. The growth was driven by journal subscriptions, partially offset by a decline in book revenue and other publishing income.

Journal Subscriptions

Journal subscription revenue for the second quarter of fiscal year 2012 of $160.1 million increased 4% from the prior year, or 2% excluding the favorable impact of foreign exchange. The growth was driven by new subscriptions ($4 million) and new society business ($1 million), partially offset by the timing of journal publications ($2 million).

Books

Book revenue for the second quarter of fiscal year 2012 decreased 1% to $44.1 million, or 2% excluding the favorable impact of foreign exchange mainly due to higher returns. Digital book revenue doubled to approximately $4 million.

Other Publishing Income

Other publishing income for the second quarter of fiscal year 2012 increased 1% to $46.9 million, but declined 1% excluding the favorable impact of foreign exchange. The decline was driven by lower revenue from supplemental journal issues and backfile licenses ($2 million), partially offset by growth in journal reprints ($1 million).

Gross Profit:

Gross profit margin for the second quarter of fiscal year 2012 was 74.0% compared to 72.2% in the prior year. Journals gross profit margin was 180 basis points higher than prior year mainly due to lower royalty costs due to timing and higher journal subscription revenue, while the gross profit margin for books was 300 basis points higher than prior year principally due to higher digital revenue.


Direct Expenses and Amortization:

Direct expenses and amortization for the second quarter of fiscal year 2012 increased 7% to $78.7 million, or 5% excluding the unfavorable impact of foreign exchange. The increase was driven by higher employment costs ($2 million) and higher editorial costs to support business growth.

Direct Contribution to Profit:

Direct contribution to profit increased 4% to $107.2 million, or 2% excluding the favorable impact of foreign exchange. Direct contribution margin in the second quarter of fiscal year 2012 was 42.7% compared to 42.1% in the prior year. The improvement was mainly driven by an increase in journal subscription revenue and higher gross profit margins, partially offset by higher direct expenses.

Society Partnerships
6 new society journals were signed with combined estimated future annual revenue of $3 million

10 renewals/extensions were signed with $11 million in estimated future combined annual revenue

4 journals lost with approximately $0.6 million in combined annual revenue

New Society Contracts
European Journal of Pain for the European Federation of IASP Chapters (EFIC)

Pharmacotherapy, for the American College of Clinical Pharmacists

Rehabilitation Nursing Journal, for Association of Rehabilitation Nurses (ARN)

British Journal of Educational Technology, for the British Educational Research Association (BERA)

Oceania and Archaeology in Oceania, for the University of Sydney for 5 years

Biology of the Cell for the French Society for Cell Biology and the French Society for Microscopy

Alliances
Signed a contract with the German Research Foundation (DFG) for a new open access business model for the foundation's books and loose-leaf material.

Partnered with the Association of Applied Biologists (AAB) for a new open access title, Food and Energy Security, due to launch in 2012. The journal will publish high quality and high impact original research on agricultural crop and forest productivity to improve food and energy security.

Wiley has signed open access funding agreements with three European research organizations: the Max Planck Society in Germany, the FWF Austrian Science Fund, and Telethon, one of the largest biomedical non-profit organizations in Italy.

Online Library Usage and Other Digital Initiatives
In the twelve months ending October 31, Wiley Online Library total usage, measured by articles accessed has increased by 50% compared with the previous 12 month period.

In September, the Company launched the Wiley Job Network - a new online recruitment tool which enables employers to attract talented applicants from high-caliber users in science, technology, healthcare, law and business. Recruiters and employers who advertise jobs on our network of career sites reach a large pool of talented professionals and specialists who are regular users of one of the world's leading research platforms.

Wiley launched the first mobile application for UCL Hospitals Injectable Medicines Administration Guide, accessible via iPhone, iPad, and iPod touch, as well as a version for Blackberry. The app was launched in conjunction with MedHand International AB, a provider of mobile knowledge for medical professionals.


Professional/ Trade (P/T):

                               For the Three Months
                                 Ended October 31,                  % change
Dollars in thousands                 2011       2010 % change         w/o FX

Books                              $99,906  $100,686      -1%            -1%
Other Publishing Income             11,783    12,139      -3%            -4%
Total Revenue                     $111,689  $112,825      -1%            -2%

Gross Profit                        70,684    69,003       2%             2%
Gross Profit Margin                  63.3%     61.2%

Direct Expenses & Amortization      39,667    39,851       -%            -1%

Direct Contribution to Profit      $31,017   $29,152       6%             5%
Direct Contribution Margin           27.8%     25.8%

Revenue:

P/T revenue for the second quarter of fiscal year 2012 decreased 1% to $111.7 million, or 2% excluding the favorable impact of foreign exchange. The decline in books was primarily due to softness in the consumer line, primarily cooking and travel ($4 million), partially offset by solid growth in technology ($1 million) and business ($1 million). The decline in consumer was a result of Borders' liquidation sales which we believe were essentially completed by mid-September, combined with the soft global economy and the inclusion of sales to Borders in the prior year. Growth in business and technology was driven by new titles, strong backlist sales and growth in eBooks. The decline in other publishing income was mainly driven by lower journal reprints.

Total P/T Revenue by Major Category (on a currency neutral basis)
Business up 3% to $35.7 million, with solid growth in digital sales

Consumer fell 10% to $33.9 million due in large part to Borders

Technology was up 7% to $21.3 million due to programming titles

Professional Education was up 3% to $7.5 million

Architecture fell 4% to $7.2 million

Psychology fell 8% to $3.5 million

Digital Revenue
eBook sales increased approximately $5 million in the quarter, or 145%, to approximately $9 million. eBook sales accounted for 8% of P/T revenue, as compared to 3% in the prior year second quarter. Strong growth at Amazon, Barnes and Noble and Apple drove results.

Gross Profit:

Gross profit margin for the second quarter of fiscal year 2012 of 63.3% was 210 basis points higher than prior year. The improvement was driven by product mix (170 basis points) including higher eBook revenue and lower inventory provisions (50 basis points).

Direct Expenses and Amortization:

Direct expenses and amortization for the second quarter of fiscal year 2012 of $39.7 million was flat with the prior year, but declined 1% excluding the unfavorable impact of foreign exchange. The decline was mainly driven by lower sales, marketing and advertising costs ($2 million) due to cost containment initiatives and the discontinuation of Borders promotions, partially offset by higher employment benefit costs.


Direct Contribution to Profit:

Direct contribution to profit for the second quarter of fiscal year 2012 increased 6% to $31.0 million, or 5% excluding the favorable impact of foreign exchange. Direct contribution margin improved 200 basis points to 27.8%, or 180 basis points on a currency neutral basis principally due to the higher gross profit margins.

Other Digital Initiatives/Products
Advantage, by Patrick Lencioni is an iOS mobile app that allows user to take a quick survey to access the health of their organization.

Academic Leadership App for the iPhone. This standalone product augments the book content by providing Department Chairs and other academic leaders with a daily tip and helpful resource information.

CPA Test Bank Applications: Financial Reporting, Business Environments, Auditing, Regulation. As a follow-up to the successful CPA flashcard apps, Wiley is offering a series of Q&A apps for the iPhone, which include much of the content from the CPA online course.

For Dummies Mobile Apps: General Knowledge, Asian Cooking & Driving Exam. These iPad and iPhone apps incorporate content from Wiley's cooking, driving instruction and general knowledge (game) titles. Many were translated into French.

New Books of Note
Business and Finance: Democracy and the Inner Life by Parker Palmer, which was released in August.

Technology: Mac OS X Lion For Dummies, by Bob LeVitus. Teach Yourself VISUALLY Mac OS X Lion, by Paul McFedries.

Consumer: Investing For Dummies, 6/e by Eric Tyson. This title is a perennial bestseller in the For Dummies series. Comfort Food Fix, by Ellie Krieger; The Betty Crocker Cookbook, 11th Edition in print and e-book format; Culinary Institute of America's The Professional Chef, 9th Edition in both print and digital formats.

Architecture: Project Management Metrics by Harold Kerzner; Visual Dictionary of Architecture, 2e by Francis D.K. Ching; Typographic Design 5e by Rob Carter

Global Education (GEd):

                                   For the Three Months
                                    Ended October 31,                    % change
Dollars in thousands                     2011       2010 % change          w/o FX

Print Books                           $55,071    $57,445      -4%             -6%
Non-Traditional & Digital Content      26,966     24,487      10%             10%
Other Publishing Income                 2,189      2,205      -1%             -1%
Total Revenue                         $84,226    $84,137       -%             -1%

Gross Profit                           57,797     56,538       2%              1%
Gross Profit Margin                     68.6%      67.2%

Direct Expenses & Amortization         26,033     24,824       5%              3%

Direct Contribution to Profit         $31,764    $31,714       -%             -1%
Direct Contribution Margin              37.7%      37.7%


Revenue:

GEd revenue for the second quarter of fiscal year 2012 of $84.2 million was flat with the prior year, but declined 1% excluding the favorable impact of foreign exchange. The decline reflects lower revenue from print textbooks, partially offset by strong growth in Non-Traditional and Digital Content.

Print Books

Print book revenue for the second quarter of fiscal year 2012 decreased 4% to $55.1 million, or 6% excluding the favorable impact of foreign exchange. The decline was driven by lower secondary school sales in Australia, sales in the prior year for rental stock build-up and higher sales returns.

Non-Traditional & Digital Content

Non-traditional and digital content revenue, which includes WileyPLUS, eBooks, digital content sold directly to institutions, binder editions and custom publishing, grew 10% to $27.0 million and accounted for 32% of total GEd revenue as compared to 29% in the prior year.

Total GEd Revenue by Region (on a currency neutral basis)
Americas decreased 1% to $64.5 million

EMEA fell 8% to $7.3 million

Asia-Pacific grew 2% to $12.4 million

Total GEd Revenue by Major Subject (on a currency neutral basis)
Engineering and Computer Science grew 4% to $12.2 million

Science decreased 1% to $19.3 million

Business and Accounting decreased 3% to $22.3 million

Social Science fell 8% to $12.8 million

Math grew 9% to $8.3 million over prior year

Microsoft Official Academic Course (MOAC) increased 3% to $2.6 million

Gross Profit:

Gross profit margin for the second quarter of fiscal year 2012 improved 140 basis points to 68.6%. Due to lower royalties, mainly due to a royalty advance recovery (70 basis points), and increased product mix including higher margin digital products (70 basis points).

Direct Expenses and Amortization:

Direct expenses and amortization for the second quarter of fiscal year 2012 of $26.0 million increased 5% from prior year, or 3% excluding the unfavorable impact of foreign exchange mainly due to employment costs.

Direct Contribution to Profit:

Direct contribution to profit for the second quarter of fiscal year 2012 of $31.8 million was flat with the prior year, but declined 1% excluding the favorable impact of foreign exchange. Direct contribution margin of 37.7% was flat with the prior year, but improved 10 basis points excluding the unfavorable impact of foreign exchange. The improvement was driven by higher gross profit margins, partially offset by higher direct expenses.


Digital Revenue/Initiatives
WileyPLUS revenue was down $0.7 million to approximately $10 million.

In October, Wiley announced an institutional licensing agreement with Indiana University. This innovative model, which will allow the university to provide etextbooks and WileyPLUS direct to its students via a per-section fee, will reduce costs to students while expanding access and improving learning efficacy.

Copyright Settlement
Wiley along with McGraw-Hill Companies, Cengage Learning, Pearson Education, and Elsevier entered into a settlement with the online tutoring site Student of Fortune, Inc. (www.studentoffortune.com) to resolve claims for copyright and trademark infringement. Each publisher discovered unauthorized digital copies of its learning materials, including full textbooks and instructor solutions manuals, which had been uploaded by third parties and sold to users on the Student of Fortune site. Wiley's portion of the settlement was $0.7 million, which is reflected in Interest Income and Other in the Condensed Consolidated Statements of Income.

Shared Services and Administrative Costs

Shared services and administrative costs for the second quarter of fiscal year 2012 increased 14% to $98.0 million, or 12% excluding the unfavorable impact of foreign exchange. The increase reflects higher technology costs ($5 million) to support investments in digital products and infrastructure; higher employment costs ($3 million); and higher rent and facility costs ($2 million). Approximately $1 million of the facility costs were duplicate rent costs during the "fit-out" period as the Company transitions from the old facilities.

RESULTS OF OPERATIONS - SIX MONTHS ENDED OCTOBER 31, 2011

Throughout this report, references to amounts "excluding foreign exchange", "currency neutral basis" and "performance basis" exclude both foreign currency translation effects and transactional gains and losses. Foreign currency translation effects are based on the change in average exchange rates for each reporting period multiplied by the current period's volume of activity in local currency for each non-U.S. location. The variance explanations below are on a currency neutral basis unless otherwise noted.

Revenue and Gross Profit:

Revenue for the first half of fiscal year 2012 increased 3% to $877.1 million, but was flat excluding the favorable impact of foreign exchange as growth in STMS was offset by declines in GEd and P/T. Gross profit margin for the first half of fiscal year 2012 of 70.1% was 130 basis points higher than prior year. The improvement was mainly driven by lower royalty costs due to timing and product mix, including higher digital revenue.

Operating and Administrative Expenses:

Operating and administrative expenses for the first six months of fiscal year 2012 of $464.5 million were 9% higher than prior year, or 6% excluding the unfavorable impact of foreign exchange. The increase was primarily driven by higher technology costs ($8 million) to support investments in digital products and infrastructure; higher employment costs ($7 million); higher rent and facility costs ($4 million); increased global travel expenses ($2 million); and higher STMS editorial costs to support business growth ($2 million).

Operating Income:

Operating income for the first half of fiscal year 2012 decreased 6% to $132.1 million, or 10% excluding the favorable impact of foreign exchange. The decline was driven by higher operating and administrative expenses to support business growth, partially offset by higher gross profit margins.

Other:

Interest expense for the first six months of fiscal year 2012 decreased $7.0 million to $3.5 million. Lower interest rates and lower average debt contributed approximately $4.1 million and $2.8 million to the decrease, respectively. Losses on foreign currency transactions were $1.0 million and $0.8 million in the first half of fiscal years 2012 and 2011, respectively. Interest income and other for the first half of fiscal year 2012 increased $1.0 million to $1.9 million mainly due to a $0.7 million favorable copyright infringement settlement recognized by the Company in the current year.


Provision for Income Taxes:

The effective tax rate for the first six months of fiscal year 2012 was 21.6% compared to 25.1% in the prior year. During the first quarters of fiscal years 2012 and 2011, the Company recorded non-cash deferred tax benefits of $8.8 million ($0.14 per share) and $4.2 million ($0.07 per share), respectively, principally associated with new tax legislation enacted in the U.K. that reduced the U.K. statutory income tax rates by 2% and 1%, respectively. The benefits recognized by the Company reflect the remeasurement of all applicable U.K. deferred tax balances to the new income tax rates as of April 1, 2012 and 2011, respectively. Excluding the tax benefits described above, the Company's effective tax rate was essentially flat at 28.4%.

Earnings Per Share:

Earnings per diluted share for the first half of fiscal years 2012 increased 3% to $1.65 compared to the prior year period. Excluding the effects of favorable foreign exchange and the fiscal year 2012 and 2011 deferred tax benefits associated with changes in the U.K. corporate income tax rates, earnings per share decreased 6% to $1.51 per share over the prior year period.

Segment Results for the Six Months Ended October 31, 2011

Scientific, Technical, Medical and Scholarly (STMS):

                               For the Six Months
                                Ended October 31,                 % change
Dollars in thousands                2011      2010 % change         w/o FX

Journal Subscriptions           $323,429  $300,093       8%             3%
Books                             81,816    85,227      -4%            -6%
Other Publishing Income           98,540    88,961      11%             6%
Total Revenue                   $503,785  $474,281       6%             2%

Gross Profit                     369,935   343,560       8%             3%
Gross Profit Margin                73.4%     72.4%

Direct Expenses & Amortization   156,596   146,666       7%             2%

Direct Contribution to Profit   $213,339  $196,894       8%             4%
Direct Contribution Margin         42.3%     41.5%

Revenue:

STMS revenue for the first half of fiscal year 2012 increased 6% to $503.8 million, or 2% excluding the favorable impact of foreign exchange. The growth was driven by journal subscriptions and other publishing income, partially offset by a decline in book revenue.


Journal Subscriptions

Journal subscription revenue for the first half of fiscal year 2012 increased 8% to $323.4 million, or 3% excluding the favorable impact of foreign exchange. The growth was driven by new subscriptions ($8 million) and new society business.

Books

Book revenue for the first six months of fiscal year 2012 decreased 4% to $81.8 million, or 6% excluding the favorable impact of foreign exchange. The decline was mainly driven by a one-time $5 million online book license with a consortium in Saudi Arabia reported in the prior year.

Other Publishing Income

Other publishing income for the first half of fiscal year 2012 increased 11% to $98.5 million, or 6% excluding the favorable impact of foreign exchange. The growth reflects higher revenue from journal reprints ($3 million), advertising ($1 million) and backfile licenses ($1 million).

Gross Profit:

Gross profit margin for the first six months of fiscal year 2012 improved 100 basis points to 73.4%. Journals gross profit margin improved 80 basis points mainly due to lower royalty costs due to timing. The gross profit margin for books improved 140 basis points due to product mix including higher digital revenue.

Direct Expenses and Amortization:

Direct expenses and amortization of $156.6 million increased 7% from prior year, or 2% excluding the unfavorable impact of foreign exchange. The increase was driven by higher employment costs ($2 million) and higher journal editorial costs to support business growth ($2 million).

Direct Contribution to Profit:

Direct contribution to profit increased 8% to $213.3 million, or 4% excluding the favorable impact of foreign exchange. Direct contribution margin for the first half of fiscal year 2012 was 42.3% compared to 41.5% in the prior year. The improvement was driven by higher journal subscription revenue and gross profit margins.

Society Partnerships
20 new journals signed with combined estimated future annual revenue of $6 million

46 journals renewed with $16 million in estimated future combined annual revenue

4 journals lost with approximately $0.6 million in combined annual revenue


Professional/ Trade (P/T):

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