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John Wiley & Sons Management Discusses Q1 2013 Results - Earnings Call Transcript

In a difficult economy, Wiley posted a 2% revenue decline for the quarter, reflecting declines in our STMS and Global Education businesses, partially offset by an increase in P/T. On a U.S. GAAP basis, earnings per share fell 26% to $0.60. U.S. GAAP EPS includes deferred tax benefits of $0.14 per share for both fiscal years 2013 and 2012 and a 6% share restructuring charge in fiscal year 2013. Tax benefits were derived from 2 consecutive legislative reductions in the United Kingdom corporate income tax rates. The benefit had no current cash tax impact.

Adjusted EPS of $0.52 declined by $0.16, both including and excluding the effects of foreign exchange. Lower revenues and higher operating and administrative expenses offset the lower tax rate. Adjusted EPS excludes the deferred tax benefit and the restructuring charge. Shared services and administrative costs of $95 million were flat to prior year, including foreign exchange. Excluding a $500,000 restructuring charge and foreign exchange, shared service costs increased by 1%, driven mostly by higher technology costs to support investments in digital product and infrastructure, partially offset by lower distribution costs.

Free cash flow for the first quarter was the use of $106 million, that's $47 million greater than the prior year. A $30 million contested German income tax deposit was the main driver. As reported previously, tax authorities in Germany notified Wiley in May 2012 that they are challenging the company's tax position with respect to the amortization of the stepped up assets. Under German tax law, the company must deposit with the German government all contested taxes and their related interests and have the right to defend its position as challenged by the authorities. The company's management and its advisers believe that the tax treatment is valid and in accordance with German tax regulations and that it will be successful in court. The circumstances are not unique to the company.

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