Ellis E. Cousens, Executive Vice President, Chief Financial & Operations Officer
Wiley
(201) 748-6534
John Wiley & Sons, Inc. Reports 8% Second Quarter Revenue Growth
Hoboken, N.J., December 6, 2006 — John Wiley & Sons, Inc. (NYSE:JWa) (NYSE:JWb) announced today that second quarter revenue of $285 million increased 8% from $263 million in the previous year's second quarter, or 7% excluding favorable foreign exchange. Adjusted earnings per diluted share was $0.44 for the second quarter, excluding an income tax benefit of $4 million, or $0.07 per diluted share. Operating income for the second quarter was $42 million compared to $43 million in the prior year period. Results for the quarter include incremental stock option expense due to the adoption of SFAS 123R of $3 million, or $0.03 per diluted share. On a basis comparable to prior year, adjusted earnings per diluted share increased 7%. Second quarter expenses and earnings were also adversely affected by the timing of a relocation incentive from the State of New Jersey of approximately $3 million, or $0.03 per diluted share, which has been delayed to the third quarter of this fiscal year.
For the first half of fiscal year 2007, Wiley’s revenue advanced 10% to $548 million, or 9% excluding favorable foreign exchange. Adjusted earnings per diluted share for the six-month period was $0.82, excluding the income tax benefit. Operating income was $77 million compared to $76 million in the prior year period. Results were adversely affected by incremental stock option expense due to the adoption of SFAS 123R of $5 million, or $0.06 per diluted share. On a basis comparable to prior year, adjusted earnings per diluted share increased 13%. Operating income for the six-month period was also adversely affected by the aforementioned relocation incentive.
"Wiley had a solid second quarter as reflected in top-line growth of 8%, with Professional/Trade and STM leading the way," said William J. Pesce, President and Chief Executive Officer. "On a comparable basis, excluding the effect of SFAS 123R and the income tax benefit, EPS growth was consistent with revenue for the quarter and six months."
He continued, "Wiley's acquisition of Blackwell Publishing (Holdings) Ltd., which we announced on November 17, will enable us to build on our solid foundation. The combination of Blackwell and Wiley, two of the world’s most respected global publishers, is a rare opportunity with highly favorable, long-term strategic implications. Together, we will deliver even greater value than we could as separate entities to all stakeholders - our customers, authors, society partners and shareholders."
The acquisition purchase price of £572 million will be financed with a combination of debt and cash. Wiley has received irrevocable commitments from all of the principal shareholders who serve on the Board of Directors of Blackwell Publishing to sell their shares to Wiley. The closing of the transaction is anticipated early in 2007.
Segment Highlights As previously reported, during the first quarter of fiscal year 2007, the Company finalized a review of certain product prices used to settle inter-segment sales. While the modification has no effect on consolidated financial results, it does impact individual segment operating results. The impact of the change, where significant to segment results, is described below.
Professional/Trade (P/T)
Wiley's U.S. P/T revenue for the second quarter advanced 10% over the prior year to $104 million. For the six-month period, revenue was up 9%, to $190 million. Direct contribution to profit increased by 14% to $29 million for the quarter and 9% to $48 million for the six-month period. Adjusting for the effect of the change in inter-segment product prices, revenue for the quarter and six-month period increased 12%.
Building on the first quarter's momentum, P/T delivered solid second quarter results driven by frontlist and backlist books in business, consumer and architecture/culinary, as well as online advertising. Second quarter highlights include the publication of The Little Book of Value Investing by Christopher Browne, a Managing Director of Tweedy, Browne Company LLC, a follow-up to Joel Greenblatt's hugely successful The Little Book that Beats the Market; Seven Years to Seven Figures by Michael Masterson; Maui Millionaires by David Finkel and Diane Kennedy; and A Leader's Legacy by James Kouzes and Barry Posner, authors of The Leadership Challenge.
The August release of Barbara Fairchild's The Bon Appetit Cookbook launched an unprecedented fall cookbook line-up that included the 8th edition of The Culinary Institute of America's Professional Chef; the Betty Crocker Cookbook Bonus Edition and Christmas Cookbook; Pillsbury Baking; and Marcus Samuelson's Soul of a New Cuisine. During the quarter, the first two titles (Italy and Ireland) of the MTV-branded series of travel guides published.
P/T's online business had an active quarter with the launch of new products, such as Schein/Career Anchors, an online self-assessment product; two new modules of Therascribe, the Child 4E Treatment Planner and the Child 2E 2006 Treatment Planner; and the Certified Internal Auditor Examination Test Prep 1.0. Wiley's branded Web sites—CliffsNotes.com, ForDummies.com and Frommers.com—generated new advertising and licensing revenue through co-promotions with major corporations and the launch of Podcasts to promote books.
Several P/T books received considerable media and customer attention during the quarter. The Wall Street Journal included a major feature on Patrick Lencioni and his Wiley books. The Five Dysfunctions of a Team continues to enjoy bestseller status on the BusinessWeek, The Wall Street Journal and The New York Times lists. Five other Wiley titles made major bestseller lists during the quarter, including The Little Book That Beats the Market, The Little Book of Value Investing, Investing For Dummies, Hotel California and The Leadership Challenge.
In September, Gavriel Salvendy, author of The Handbook of Human Factors, dean of the Industrial Engineering Department at Tsinghua University and professor at Purdue University, was awarded the Friendship Award by Chinese Premier Wen Jiabao in the Great Hall of the People in Beijing, China. This award is the highest honor that the Chinese government confers on foreigners.
During the quarter, Wiley acquired Whatsonwhen Ltd., a U.K.-based provider of travel-related online content, technology and related services. The acquisition will enhance Wiley's extensive travel-related content business, which includes the integrated online and print Frommer's, For Dummies and Unofficial Guides brands.
The Company announced a multi-year publishing agreement with the Lincoln Center for the Performing Arts, Inc. for a minimum of 15 books that will draw on Lincoln Center's community of artists, extensive archives and educational expertise. The first title, Lincoln Center: A Promise Realized, 1979-2006 by Stephen Stamas and Sharon Zane, published in October. Another alliance was formed with Essential Learning Partnership, a provider of web-based continuing education for clinical professionals in psychology, counseling and social work. As a result of this agreement, clinicians will be able to purchase training courses using Wiley titles to meet license requirements.
Scientific, Technical, and Medical (STM)
U.S. STM revenue increased 7% over the previous year's second quarter to $53 million and 9% to $106 million for the first half of the fiscal year. The improvement was driven by increased revenue from journals, books and controlled-circulation advertising. New businesses and publications acquired during the past year, such as InfoPOEMs, Dialysis &
Transplantation, The Hospitalist and the Journal of Orthopaedic Research, contributed $2 million to year-to-date revenue growth.
Direct contribution to profit for the second quarter of fiscal years 2007 and 2006 was $23 million. Direct contribution to profit for the six-month period of fiscal year 2007 was $48 million, which was flat with prior year. Revenue improvement was offset by additional costs associated with new business growth, gross margins on imported books, royalty costs on society-owned journals and stock option costs associated with the adoption of SFAS 123R.
Customers continue to take advantage of Wiley InterScience’s content. The number of visits through the first six months of this fiscal year increased by approximately 32% over the first half of last year.
Early in the quarter, Wiley and the International Society for Stem Cell Research (ISSCR) signed a multi-year agreement to jointly develop and publish Current Protocols in Stem Cell Biology, the first comprehensive source of high-quality methods for isolating, maintaining and differentiating embryonic and adult stem cells for both novice researchers and experienced investigators.
In addition, the Company announced the launch of Statistical Analysis and Data Mining, a new international journal providing an interdisciplinary focus on data analysis. The journal will publish six times per year beginning in calendar year 2007. Designed to encourage collaboration across the diverse disciplines of computer science, engineering and statistics, Statistical Analysis and Data Mining will communicate novel data mining and statistical techniques to both novices and experts involved in the analysis of data.
Two of the 2003 recipients of the Wiley Prize in Biomedical Sciences, Dr. Andrew Z. Fire and Dr. Craig C. Mello, were awarded the 2006 Nobel Prize in Physiology or Medicine for their discovery of RNA interference. Elizabeth H. Blackburn, PhD and Carol W. Greider, co-recipients of the Wiley Prize in Biomedical Sciences earlier this year, received the 2006 Lasker Award for Basic Medical Research.
Higher Education
U.S. Higher Education revenue for the second quarter of fiscal year 2007 was $42 million, essentially the same as in the prior year. Year-to-date revenue increased 3% from prior year to $90 million. Adjusting for the effect of the change in inter-segment product prices, revenue grew 3% for the quarter and 5% for the first six months. Improvement in accounting and
social sciences, licenses and reprint revenue was partially offset by lower sales in the sciences and mathematics.
Adjusting for the effect of the change in inter-segment product prices, direct contribution to profit for the quarter and six-month period improved 11% and 8%, respectively as a result of cost reduction initiatives in composition, paper purchasing and printing.
Year-to-date WileyPLUS sales were up 83%. Usage continued on an upward trend with more than a half million individual visits during the quarter. In September, the Company published WileyPlus For Dummies, employing the series’ unique pedagogical style to serve as an instructor reference manual. WileyPLUS sales are deferred with the majority of the revenue recognized over the course of the second half of the fiscal year. As of October 31st, approximately $3 million of current WileyPLUS sales were deferred until the second half of this fiscal year. Excluding the impact of the deferral and after adjusting for the effect of inter-segment product prices, Higher Education revenue would have increased 6% for the six-month period.
The accounting and social sciences programs continued their strong results, particularly Kimmel/Financial Accounting 4e; Kieso/Intermediate Accounting 12e; deBlij/Regions 12e and Human Geography 8e; Huffman/Psychology 8e; Callister/Materials 7e; Incropera/Heat Transfer 6e; and Meriam/Statistics Dynamics 6e.
October was the first month in which Wiley distributed Microsoft Official Academic Curriculum (MOAC) textbooks and e-learning tools. The alliance with Microsoft was extended internationally during the quarter, and our global sales force is already launching it around the world. This important relationship enables Wiley to establish a significant global position in the technology certification market.
Europe
Wiley Europe's second quarter revenue of $81 million improved 5% over prior year. Revenue for the first six months of the year increased 9% to $153 million. Foreign exchange favorably affected revenue in the second quarter and six-month period by 3% and 2%, respectively over the prior year periods. Adjusting for the effect of the change in inter-segment product prices, as well as foreign exchange, Wiley Europe’s revenue for second quarter and six-months of fiscal year 2007 improved 4% and 8%,
respectively. Growth in journal revenue and P/T sales was partially offset by the anticipated reduction in Sudoku For Dummies sales and lower advertising revenue.
Direct contribution to profit for the second quarter and six-month period improved over prior year by 11% and 19% to $28 million and $52 million, respectively. Foreign exchange favorably affected the second quarter direct contribution to profit by approximately 2% over the prior year’s second quarter. Foreign exchange had no impact on the six-month comparison. Adjusting for the effect of the change in inter-segment product prices, as well as foreign exchange, direct contribution to profit for the second quarter and six-month period improved over prior year by 3% and 11%, respectively. Higher journal revenue and inventory cost reduction initiatives contributed to the results.
STM journal subscriptions continued to improve in all disciplines, particularly Chemistry, which includes the Angewandte Chemie journals published on behalf of the German Chemical Society. For the second quarter and six-month period of fiscal year 2007, The Cochrane Library, an evidence-based medicine collection available through Wiley InterScience, increased 30% and 28%, respectively.Wiley Europe forged a publishing agreement with the Royal Meteorological Society (RMetS), a leading professional and learned society, to publish all five of its journals. This agreement expands an existing relationship, establishing Wiley as the exclusive publisher of all the RMetS journals. Wiley and the RMetS have worked together since 1980, when they launched the International Journal of Climatology.
The three Sudoku For Dummies titles continue to sell, although not at the same pace as last year. Cedric Reid: CFO Insights published during the quarter with strong bulk sales. The publication of Davison/The Shopaholic's Guide to Buying Online received considerable promotion from a number of bookstore chains. The Company continues to take advantage of opportunities afforded by WileyPLUS, such as designing customized products to meet pharmaceutical companies' training needs.
Early in the quarter, Wiley Europe announced the formation of a multi-year publishing partnership with the Dana Centre, an extension of the Science Museum in London. Written by leading technology journalists and experts in the U.K., the books will examine technology-related news stories from around the world, explore their implications on everyday life and predictions for the future. The Dana Centre is well-known for its innovative and thought-provoking adults-only events and debates on contemporary science, technology and culture.
Asia, Australia, and Canada
Wiley's revenue in Asia, Australia and Canada advanced 7% to $32 million, or 5% excluding favorable foreign exchange. For the first half of fiscal year 2007, revenue advanced 11% to $60 million, or 8% excluding foreign exchange. Growth was driven by P/T in Asia and Canada and Higher Education and School sales in Australia. Lower STM reference book sales in Asia and sluggish Higher Education sales in Canada, partially offset the revenue improvements in other areas.
Excluding the effect of foreign exchange and the change in inter-segment product prices, direct contribution to profit decreased $1.8 million for the second quarter and $2.5 million for the six-months of fiscal year 2007, principally due to product mix and higher sales, marketing and composition costs associated with new business development. Foreign exchange favorably affected the second quarter and six-month direct contribution to profit by approximately $.5 million and $.7 million, respectively over the prior year periods.
Wiley Asia published several key P/T titles during the quarter including Iqbal and Mirakhor’s An Introduction to Islamic Finance; The Rise of India: Its Transformation from Poverty to Prosperity by Niranjan Rajadhyaksha, the Deputy Editor of Business World, one of India’s leading business magazines; and Equities by Mark Mobius, as part of his Master Class series. Strong retail performance in many Asian markets on such titles as China CEO: Voices of Experience from 20 International Leaders by Juan Antonio Fernandez boosted results. In addition, WileyPLUS continued to gain momentum, particularly in Malaysia where the government is funding new universities. MOAC titles are eliciting much interest, especially in India.
All of Wiley Australia’s businesses showed strength during the quarter. The second half of the year, which is the peak selling season for the Higher Education and School businesses, began on a high note, with the rollout of more than 20 WileyPLUS related titles. A new Web site went live in August, offering more than 30,000 P/T titles with rich functionality. This enhanced web presence has already helped to attract a new partnership with the Association of Professional Engineers, Scientists and Managers. Cricket For Dummies was released concurrently with the Australia vs. England cricket competition.
Wiley Canada delivered mixed results for the second quarter, showing strength in its P/T business, but falling short in Higher Education. Wiley Canada's P/T growth was due to the continued demand for local real estate books and frontlist releases.
Tax Benefits
In the second quarter of fiscal year 2007 the Company reported a tax benefit of $4.2 million, or $0.07 per diluted share, mainly due to the favorable resolution of certain tax matters.
As previously discussed in the Company's Annual Report filed on Form 10-K for fiscal year 2006, pursuant to guidance issued by the Internal Revenue Service in May 2005, the Company recorded a tax benefit of approximately $7.5 million, or $0.12 per diluted share, in the first quarter of fiscal year 2006 and reduced income taxes due on the fiscal year 2005 repatriation of earnings from its European subsidiaries. The tax benefit offsets a tax charge recorded in the fourth quarter of fiscal year 2005.
Neither of the tax adjustments had a cash impact to the Company. The Company has excluded these tax items for comparative purposes so as not to distort the underlying performance of the Company.
Conference Call
Wiley will hold a conference call today, Wednesday, December 6, 2006, at 10:30 a.m. (ET) to discuss its financial results for the second quarter of fiscal year 2007. The call will include a brief management presentation followed by a question and answer session.
To participate in the conference call, please dial the following number approximately ten minutes prior to the scheduled starting time: (800) 967-7184
International callers may participate by dialing: (719) 457-2633
A replay of the call will be available from 1:30 p.m. (ET) on Wednesday, December 6 through midnight on Wednesday, December 13, by dialing (888) 203-1112 or (719) 457-0820 and entering pass code: 5384926.
A live audio webcast will be accessible at http://www.wiley.com/go/communications. A replay of the webcast will be accessible for 14 days afterwards.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements concerning the Company's operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements. Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company's journals; (iii) the financial stability and
liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key online retailers; (vi) the seasonal nature of the Company's educational business and the impact of the used book market; (vii) worldwide economic and political conditions; (viii) the Company's ability to protect its copyrights and other intellectual property worldwide and (ix) other factors detailed from time to time in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any
such forward-looking statements to reflect subsequent events or circumstances.
Founded in 1807, John Wiley & Sons, Inc., provides must-have content and services to customers worldwide. Its core businesses include scientific, technical, and medical journals, encyclopedias, books, and online products and services; professional and consumer books and subscription services; and educational materials for undergraduate and graduate students
and lifelong learners. Wiley has publishing, marketing, and distribution centers in the United States, Canada, Europe, Asia, and Australia. The Company is listed on the New York Stock Exchange under the symbols JWa and JWb. Wiley's Internet site can be accessed at www.wiley.com.
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