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JW-A > SEC Filings for JW-A > Form 10-Q on 10-Dec-2012All Recent SEC Filings

Show all filings for WILEY JOHN & SONS, INC.

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


10-Dec-2012

Quarterly Report


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

RESULTS OF OPERATIONS - SECOND QUARTER ENDED OCTOBER 31, 2012

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. For the second quarters of fiscal years 2013 and 2012, the quarterly average exchange rates to convert British pounds sterling to U.S. dollars were 1.59 and 1.60, respectively. The quarterly average exchange rates to convert euros into U.S. dollars for the same periods were 1.27 and 1.40, respectively. Unless otherwise noted, all variance explanations below are on a currency neutral basis.

Revenue and Gross Profit:

Revenue for the second quarter of fiscal year 2013 declined 3% to $431.8 million reflecting lower print book sales in all three businesses, partially offset by journal subscription growth and digital book sales.

Gross profit for the second quarter of fiscal year 2013 of 70.0% was 30 basis points lower than prior year mainly due to lower print book volume, partially offset by higher margin incremental revenue from the Inscape acquisition, completed in the fourth quarter of fiscal year 2012, and digital book growth.

Operating and Administrative Expenses:

Operating and administrative expenses for the second quarter of fiscal year 2013 of $224.0 million were 4% lower than prior year, or 3% excluding the favorable impact of foreign exchange. The decrease was mainly driven by cost containment initiatives ($5 million), lower employment costs ($2 million), lower journal and book distribution costs ($1 million), lower technology costs ($1 million) and lower facility costs ($1 million) partially offset by incremental costs associated with Inscape ($3 million).

Impairment of Consumer Publishing Programs:

In September 2012, the Company entered into negotiations with Houghton Mifflin Harcourt ("HMH") regarding the sale of the Company's culinary, CliffsNotes, and Webster's New World Dictionary consumer publishing programs. As a result, the Company began accounting for these publishing programs as Assets Held for Sale. The Company recorded a pre-tax impairment charge of $12.1 million ($0.12 per share) in the second quarter of fiscal year 2013 to reduce the carrying value of the assets within these programs to their fair value, based on the estimated sales price, less costs to sell. Subsequently, on November 5, 2012, the Company completed the sale of these publishing programs to Houghton Mifflin Harcourt ("HMH") for approximately $11.0 million in cash, which approximated the estimated sale price. In connection with the sale, the Company also entered into a transition services agreement.

The Company is continuing to explore opportunities to sell its remaining consumer publishing programs which include pets, crafts, nautical and general interest. If a sale is not feasible, the Company plans to discontinue publishing within these remaining programs. As a result, in the second quarter of fiscal year 2013, the Company recorded a pre-tax impairment charge of $3.4 million ($0.04 per share) to reduce the carrying value of inventory and royalty advances within these consumer publishing programs to their estimated realizable value.

Gain on Sale of Travel Publishing Program:

On August 10, 2012, the Company entered into a definitive agreement with Google, Inc. ("Google") for the sale of its travel publishing program, including all of its interests in the Frommer's, Unofficial Guides, and WhatsonWhen brands for approximately $22 million in cash, of which $3.3 million is held in escrow. The effective date of the transaction was August 31, 2012. As a result, the Company recorded a $9.8 million pre-tax gain on the sale ($0.10 per share) in the second quarter of fiscal year 2013. In connection with the sale, the Company also entered into a transition services agreement.


Interest Expense/Income, Foreign Exchange and Other:

Interest expense for the second quarter of fiscal year 2013 increased $1.1 million to $2.9 million mainly due to higher interest rates. The Company's average cost of borrowing during the current quarter was approximately 2.1% compared with 1.1% in the prior year period. In the second quarters of fiscal years 2013 and 2012, the Company recognized foreign exchange transaction losses of $1.5 million and $0.7 million, respectively. Interest income and other for the second quarters of fiscal years 2013 and 2012 were $0.7 million and $1.3 million, respectively.

Provision for Income Taxes:

The effective tax rate for the second quarter of fiscal year 2013 was 27.3% compared to 28.2% in the prior year. Excluding the impact the consumer publishing program impairment charges and the gain on the sale of the travel program, the Company's effective tax rate increased from 28.2% to 28.5%.

Earnings Per Share:

Earnings per diluted share for the second quarter of fiscal year 2013 decreased
14% to $0.71. Excluding the effects of unfavorable foreign exchange ($0.02 per
share), the consumer publishing program impairment charges ($0.16 per share) and
the gain on sale of the travel publishing program ($0.10 per share), earnings
per diluted share decreased 5% or $0.04 per share.

Second Quarter Segment Results

Scientific, Technical, Medical and Scholarly (STMS):
                                                         For the Three Months
                                                          Ended October 31,             % change
    Dollars in thousands                                     2012         2011 % change   w/o FX
    Journal Subscriptions                                $162,240     $160,133       1%       2%
    Books                                                  41,131       44,073      -7%      -6%
    Other Publishing Income                                46,460       46,864      -1%       1%
    TOTAL REVENUE                                        $249,831     $251,070       0%       1%

    GROSS PROFIT                                          183,910      185,837      -1%       0%
    Gross Profit Margin                                     73.6%        74.0%

    Direct Expenses & Amortization                       (74,918)     (78,655)      -5%      -3%

    DIRECT CONTRIBUTION TO PROFIT                        $108,992     $107,182       2%       3%
    Direct Contribution Margin                              43.6%        42.7%

    Allocated Shared Services and Administrative Costs:
    Distribution                                         (11,759)     (12,454)      -6%      -5%
    Technology Services                                  (18,722)     (17,278)       8%       8%
    Occupancy and Other                                   (6,051)      (5,718)       6%       9%
    CONTRIBUTION TO PROFIT                                $72,460      $71,732       1%       2%
    Contribution Margin                                     29.0%        28.6%


Revenue:

STMS revenue for the second quarter of fiscal year 2013 of $249.8 million was flat with the prior year, but increased 1% excluding the unfavorable impact of foreign exchange. The increase was driven by journal subscriptions and other publishing income, partially offset by a decline in print books.

Journal Subscriptions

Journal subscription revenue for the second quarter of fiscal year 2013 increased 1% to $162.2 million, or 2% excluding the unfavorable impact of foreign exchange. The growth was driven by new subscriptions ($2 million) and publication timing ($1 million).

Books

Book revenue for the second quarter of fiscal year 2013 decreased 7% to $41.1 million, or 6% excluding the unfavorable impact of foreign exchange. The decline was driven by lower print book revenue ($3 million), partially offset by growth in digital books ($1 million). Approximately $0.7 million of revenue was delayed until November due to distribution interruptions caused by Hurricane Sandy.

Other Publishing Income

Other publishing income for the second quarter of fiscal year 2013 declined 1% to $46.5 million, but increased 1% excluding the unfavorable impact of foreign exchange. The growth was driven by increased sales of publishing rights ($2 million), revenue from funded access journal publications ($1 million) and article select ($1 million), partially offset by a reduction in journal reprints ($2 million) and other revenue ($1 million), mainly backfiles and advertising.

Total STMS Revenue by Region (on a currency neutral basis)
Americas grew 2% to $93.0 million

EMEA was flat at $141.6 million

Asia-Pacific decreased 4% to $15.2 million

Gross Profit:

Gross profit margin for the second quarter of fiscal year 2013 of 73.6% was 40 basis points lower than prior year. The decline was mainly driven by lower print book volume. Higher royalty rates on society journals were offset by lower production costs due to the transition to higher margin digital products.

Direct Expenses and Amortization:

Direct expenses and amortization of $74.9 million decreased 5% from prior year, or 3% excluding the favorable impact of foreign exchange. The decrease was mainly driven by lower accrued incentive compensation ($1 million) and other, mainly cost containment initiatives ($2 million).

Contribution to Profit:

Contribution to profit increased 1% to $72.5 million, or 2% excluding the unfavorable impact of foreign exchange. Contribution margin in the second quarter of fiscal year 2013 of 29.0% was 40 basis points higher than prior year mainly due to lower operating expenses as a percentage of revenue growth.


Society Partnerships
5 new society journals were signed in the quarter with combined annual revenue of approximately $2 million

14 renewals/extensions were signed with approximately $7 million in combined annual revenue

No society contracts were lost

New Society Contracts
Journal of Clinical Pharmacology for the American College of Clinical Pharmacology

Mining + Geo in cooperation with the DGGT- German Society for Geotechnical Engineering

Political Science Quarterly for the Academy of Political Science

World Psychiatry for the World Psychiatric Association

Geoscience Data Journal for the Royal Meteorological Society, an open access journal

Open Access Survey and Performance

In October, Wiley announced the results of an author survey on open access. Over ten thousand authors from across Wiley's journal portfolio responded to questions about gold open access, where their institution or funding body pays a fee to ensure the article is made open access. The research explored the factors that authors assess when deciding where to publish, and whether to publish gold open access. Among the top factors considered by authors were the relevance and scope of the journal, the journal's impact factor and the international reach of the journal. Of the 10,600 respondents, 30% had published at least one gold open access paper, and 79% stated that open access was more prevalent in their discipline than three years ago. Among authors yet to publish open access, the list of reasons given included a lack of high profile open access journals (48%), lack of funding (44%) and concerns about quality (34%). Authors said they would publish in an open access journal if it had a high impact factor, if it were well regarded and if it had a rigorous peer review process. Wiley continues to show solid open access revenue growth, doubling its author funded revenue in the second quarter. An open access option is available for individual journal articles to authors in 81% of the journals Wiley publishes.

Nobel Prize Winners

Wiley is proud to announce that eight 2012 Nobel Prize winners have published their work with Wiley. To celebrate the achievements of all Nobel winners, Wiley is making a selection of content from this and past years' winners of Nobel Prizes in all areas free to access until the end of the year. Wiley-published winners include: Sir John B. Gurdon, UK, and Professor Shinya Yamanaka, Japan, awarded the Nobel Prize in Physiology or Medicine; Professor Robert J. Lefkowitz and Professor Brian K. Kobilka, USA, awarded the Nobel Prize in Chemistry; and Professor Serge Haroche, France and Dr. David J. Wineland, USA, awarded the Nobel Prize in Physics. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2012 has been awarded jointly to Professors Alvin E. Roth and Lloyd S. Shapley, of the USA.

Research4Life

The Company and other Research4Life partners announced that they have agreed to extend their partnership through 2020. Research4Life (www.research4life.org) currently provides over 6,000 institutions in more than 100 developing countries with free or low cost access to peer-reviewed online content from the world's leading scientific, technical and medical publishers. The renewed commitment will ensure that the 18,000 peer reviewed scientific journals, books and databases now available through the public-private Research4life partnership will continue to reach research communities in low- and middle-income countries.


Professional Development (PD):

In the second quarter of fiscal year 2013, the Company changed the name of its Professional/Trade segment to Professional Development. The change is part of a portfolio realignment to focus on content and workflow solutions for professionals in business, finance, accounting, talent management, leadership, technology, behavioral health, engineering/architecture and professional education.

For the Three Months Ended October 31, % change Dollars in thousands 2012 2011 % change w/o FX (a) Books $83,393 $96,634 -14% -13% Training and Assessment 6,818 1,297 Other Publishing Income 11,070 11,783 -6% -4% TOTAL REVENUE $101,281 $109,714 -8% -7%

GROSS PROFIT 65,060 69,489 -6% -6% Gross Profit Margin 64.2% 63.3%

Direct Expenses & Amortization (39,405) (39,667) -1% -1% Impairment of Consumer Publishing Programs (see page 16) (15,521) - Gain on Sale of Travel Publishing Program (see page 16) 9,829 -

DIRECT CONTRIBUTION TO PROFIT $19,963 $29,822 -33% -13%
Direct Contribution Margin 19.7% 27.2%

Allocated Shared Services and Administrative Costs:
Distribution (10,367) (11,483) -10% -10% Technology Services (7,372) (6,288) 17% 17% Occupancy and Other (3,249) (3,831) -15% -15% CONTRIBUTION TO PROFIT/(LOSS) $(1,025) $8,220 -112% -39% Contribution Margin -1.0% 7.5%

(a) Adjusted to exclude the fiscal year 2013 gain on sale of the travel publishing program and the asset impairment charges related to the remaining consumer publishing programs.

Revenue:

PD revenue for the second quarter of fiscal year 2013 decreased 8% to $101.3 million, or 7% excluding the unfavorable impact of foreign exchange. The decline was driven by lower print book revenue and other publishing income, partially offset by incremental revenue from the Inscape training and assessment business acquired in the fourth quarter of fiscal year 2012 ($6 million). The decline in book revenue was driven by continued softness in global retail channels for the legacy print business, particularly consumer titles sold or discontinued. The travel publishing program, which was sold on August 10, 2012, contributed $1.0 million to the revenue decline, while the remaining consumer publishing programs that will be sold or discontinued contributed $5.3 million to the decline. In addition, approximately $2.0 million of revenue was delayed until November due to distribution interruptions caused by Hurricane Sandy. Digital revenue grew 50% in the second quarter of fiscal year 2013 to approximately $22 million. Digital revenue accounted for 22% of PD revenue in the second quarter of fiscal year 2013, compared to 13% in the prior year.

Total PD Revenue by Region (on a currency neutral basis)
Americas declined 9% to $78.9 million

EMEA decreased 3% to $14.7 million

Asia-Pacific increased 9% to $7.7 million


Total PD Revenue by Major Category (on a currency neutral basis)
Business rose 7% to $38.2 million, with solid growth from Inscape and the Certified Financial Analyst Institute (CFA) partnership

Consumer fell 32% to $24.1 million

Technology decreased 7% to $19.9 million

Professional Education was down 12% to $6.8 million

Architecture declined 13% to $6.4 million

Psychology decreased 6% to $3.3 million

Gross Profit:

Gross profit margin for the second quarter of fiscal year 2013 of 64.2% was 90 basis points higher than prior year reflecting higher margin revenue from the Inscape acquisition and growth in digital books partially offset by lower print volume.

Direct Expenses and Amortization:

Direct expenses and amortization for the second quarter of fiscal year 2013 declined 1% to $39.4 million. The decrease was mainly driven by lower accrued incentive compensation ($1 million), reduced headcount ($1 million) and cost containment initiatives ($1 million), partially offset by incremental costs associated with Inscape operations ($3 million).

Contribution to Profit/(Loss):

In the second quarter of fiscal year 2013, contribution to profit/(loss) decreased $9.2 million to ($1.0) million. On a currency neutral basis and excluding the impairment charges on the consumer publishing program and gain on sale of the travel publishing program, contribution to profit/(loss) declined $3.4 million to $4.7 million. On a currency neutral basis and excluding the impairment charges and gain on sale, contribution margin was 4.6% in the second quarter of fiscal year 2013 with the decline mainly driven by lower revenue.

Acquisitions

In November, the Company acquired Efficient Learning Systems, Inc. ("ELS") an e-learning system provider focused in the areas of professional finance and accounting, for $24 million. The acquisition helps Wiley become a leader in the growing global online CPA exam preparation market and will accelerate our e-learning strategies with capabilities that can be leveraged with other accounting and financial certifications. Annual revenue is expected to be approximately $7 million and for fiscal year 2013 modestly dilutive to earnings.

Product Launches
Tax Preparer launched in October 2012. RTRPTestBank.com contains 1000+ multiple choice questions that allow users studying for the Registered Tax Return Preparer exam to create unlimited practice tests and custom quizzes in a format similar to the actual exam. Candidates can purchase subscriptions through the marketing website, PasstheTaxExam.com, which also sells additional products and provides social features.

CMA Review (1st of two phases) launched in October 2012, WileyCMA.com provides Certified Management Accountant exam candidates with review guides, practice software, study tips, and exam resources. In partnership with the Institute of Management Accountants ("IMA"), Wiley will now take over the production and sales of CMA review titles. With this first release, we are selling access to the IMA's Test Bank and additional titles.

Pfeiffer Assessment Platform Release - launched on September 9, 2012, this release added the Treasurer Self and Treasurer 360 assessments as well as enhancements to the Administrative functionality, and simplified registration.

Sybex Video Training DVDs and Streaming Websites - released in September and October 2012, these products are available as DVD-ROMs, online streaming products, or as downloadable files. Using hands-on lessons with step-by-step instruction, the high-definition video training products cover the essential features of the top-selling software packages from Autodesk, each featuring up to eight hours of training.


Global Education (GEd):
                                                        For the Three Months
                                                          Ended October 31,            % change
    Dollars in thousands                                      2012       2011 % change   w/o FX
    Print Books                                            $48,793    $57,093     -15%     -14%
    Non-Traditional & Digital                               29,694     26,919      10%      10%
    Other Publishing Income                                  2,156      2,189      -2%      -2%
    TOTAL REVENUE                                          $80,643    $86,201      -6%      -6%

    GROSS PROFIT                                            53,231     58,992     -10%     -10%
    Gross Profit Margin                                      66.0%      68.4%

    Direct Expenses & Amortization                        (24,360)   (26,033)      -6%      -6%

    DIRECT CONTRIBUTION TO PROFIT                          $28,871    $32,959     -12%     -12%
    Direct Contribution Margin                               35.8%      38.2%

    Allocated Shared Services and Administrative Costs:
    Distribution                                           (3,779)    (3,913)      -3%      -3%
    Technology Services                                    (7,389)    (6,807)       9%       9%
    Occupancy and Other                                    (1,811)    (1,732)       5%       5%
    CONTRIBUTION TO PROFIT                                 $15,892    $20,507     -23%     -22%
    Contribution Margin                                      19.7%      23.8%

Revenue:

GEd revenue for the second quarter of fiscal year 2013 decreased 6% to $80.6 million. The decline reflects lower revenue from print textbooks, partially offset by growth in non-traditional and digital revenue.

Print Books

Print book revenue for the second quarter of fiscal year 2013 declined 15% to $48.8 million, or 14% excluding the unfavorable impact of foreign exchange. The decrease was mainly driven by enrollment declines, particularly in the for-profit schools sector, and the impact of rentals on the traditional textbook business. Approximately $1.5 million of revenue was delayed until November due to distribution interruptions caused by Hurricane Sandy.

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, increased 10% to $29.7 million in the second quarter of fiscal year 2013 principally due to growth in WileyPLUS and digital sales to institutions. Non-traditional and digital content revenue accounted for 37% of total GEd revenue, as compared to only 31% in the prior year.

Total GEd Revenue by Region (on a currency neutral basis)
Americas declined 7% to $61.7 million

EMEA fell 4% to $7.1 million

Asia-Pacific decreased 5% to $11.8 million


Total GEd Revenue by Major Subject (on a currency neutral basis)
Engineering and Computer Science grew 5% to $12.7 million

Science fell 12% to $16.9 million

Business and Accounting declined 12% to $19.3 million

Social Science decreased 9% to $13.7 million

Math fell 3% to $8.2 million

Microsoft Official Academic Course (MOAC) grew 5% to $2.8 million

Gross Profit:

Gross profit margin for the second quarter of fiscal year 2013 was 66.0% compared to 68.4% in the prior year. The decline was mainly driven by lower print textbook volume and higher composition costs to support WileyPLUS course development.

Direct Expenses and Amortization:

Direct expenses and amortization decreased 6% to $24.4 million in the second quarter of fiscal year 2013 principally due to travel and editorial cost containment initiatives.

Contribution to Profit:

Contribution to profit for the second quarter of fiscal year 2013 decreased $4.6 million to $15.9 million. Contribution margin for the second quarter of fiscal year 2013 was 19.7% compared to 23.8% in the prior year, with the decline mainly driven by lower revenue.

Acquisition

On October 25, 2012, the Company acquired Deltak.edu ("Deltak") for approximately $220 million. Deltak, based in Chicago, creates and manages online degree programs for traditional non-profit colleges and universities. This acquisition positions Wiley as an online Educational Services Provider and expands the services and content value chain for how people teach and learn. Through Deltak, Wiley will now provide a complete solution to help traditional colleges and universities transition their programs into valuable online experiences offering market research, instructional design, marketing, and student recruitment and retention services with the goal of boosting the quality and efficacy of online and hybrid programs. Deltak also provides Wiley with access to high-growth markets and a variety of capabilities and technologies for its expansion into custom online courses and curriculum development. Wiley offers Deltak a stable base for new program investment, the ability to accelerate their growth globally, access to professional consumers and expanded offerings of content and faculty development. Today Deltak supports more than 100 online programs. Deltak reported revenue of $54 million for its most recently completed fiscal year end, September 30, 2012, representing growth of 23% over the prior fiscal year. For the remainder of Wiley's fiscal year, Deltak is expected to contribute approximately $36 million of revenue and be modestly dilutive to earnings per share.


Shared Services and Administrative Costs
                       For the Three Months
                         Ended October 31,              % change
  Dollars in thousands       2012       2011 % change w/o FX (a)

  Distribution            $25,785    $27,845      -7%        -7%
  Technology Services      35,577     35,422       0%         1%
  Finance                  11,233     11,023       2%         3%
  Other Administration     22,290     23,686      -6%        -5%
  Total                   $94,885    $97,976      -3%        -3%

. . .

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