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Operator
Good day, everyone, and welcome to the John Wiley & Sons conference call.
Today's conference is being recorded.
Before introducing Mr. Will Pesce, President and Chief Executive Officer, I would like to remind you that this discussion will contain forward-looking statements.
You should not rely on such statements, as actual results may differ materially and are subject to factors that are discussed in detail in the Company's 10-K and 10-Q filings with the SEC.
The Company does not undertake any obligation to update or revise forward-looking statements to reflect subsequent events or circumstances.
Also, as a reminder to our audience, this call is being recorded.
Mr. Pesce, please go ahead.
Will Pesce - President, CEO
Good morning, and welcome to Wiley's second-quarter conference call.
I'm with Ellis Cousens, Executive Vice President and Chief Financial and Operations Officer.
I will begin today's conference call with an overview of Wiley's second-quarter performance.
Then Ellis and I will respond to your questions.
As noted in the press release issued earlier today, second-quarter revenue of 247 million increased 8 percent from prior year, or 6 percent excluding foreign currency effects.
Operating income of 40 million increased 9 percent from prior year, while EPS of 42 cents increased by 1 penny from last year's second quarter.
Gross profit as a percent of revenue in the quarter was slightly below prior year, due to product mix.
Operating expenses for the quarter of 119 million increased 5 percent from prior year, excluding foreign currency effects.
Second-quarter results were driven primarily by continued strength in our global STM business.
Lower return rates in higher education and Professional/Trade also contributed to the year-on-year growth.
Revenue growth in Europe was strong.
Year-to-date revenue of 474 million increased 6 percent from prior year, or 4 percent excluding foreign currency effects.
Operating income of 71 million was up slightly from prior year.
As expected, EPS was 1 penny below prior year.
Operating expenses for the 6 months of 238 million increased 5 percent from prior year excluding foreign currency effects.
Cash flow after normal investing activities for the 6 months exceeded prior year by $20 million.
October cash collections in the U.S. were over 55 million, the second-highest month in the Company's history.
Improved receivable collections and effective inventory management contributed to this performance.
During the first half of this fiscal year, the Company acquired nearly 1 million shares at an average price of $31.96.
Based on year-to-date results, leading indicators, and market conditions, we continue to anticipate revenue and earnings growth in the mid to high single digits in fiscal year 2005.
I would like to provide some more information about our core businesses.
I joined some Wiley colleagues on a productive trip to China in November.
We met with government officials, publishing partners, authors, customers, and the leaders of two universities.
I'm pleased to report that the Wiley brand is well-known and respected in China, and that we are well represented by a small, but highly professional, enthusiastic team.
Over 100 universities and research institutions have access to Wiley InterScience in China. eGrade Plus is being used at Tianjin University.
We saw our first Chinese translation of the "For Dummies" series in a major Shanghai bookstore.
Regarding our individual businesses, Professional/Trade's revenue for the second quarter of 89 million advanced 3 percent from prior year.
Direct contribution to profit of 26 million was 3 percent higher than prior year.
Gross profit as a percent of revenue improved, and operating expenses increased only 4 percent over last year's second quarter.
Year-to-date revenue fund for Professional/Trade of 165 million was up slightly from prior year.
As expected, direct contribution to profit of 42 million was down from last year.
For the 6 months, operating expenses were up 5 percent.
After a sluggish August, Professional/Trade sales rebounded in September and October.
The business, architecture, professional culinary, psychology, and education programs performed well in the quarter.
Journals and revenue generated through brand licensing and Website advertising also contributed positively to the second-quarter results.
Our biannual "For Dummies" tracking study of consumer attitudes, awareness, and usage was completed in August.
The "For Dummies" brand is recognized by nearly 150 million U.S. adults.
Brand awareness is up 13 percent since 2002 with 8 of 10 U.S. adult reference book readers aware of the brand.
Repeat purchasing is also up, with 53 percent of readers who purchased a "For Dummies" book in the previous 12 months buying more than one title.
Beyond the States, "French History for Dummies," which has sold over 50,000 copies, is likely to become the best-selling non-English title in the history of the "For Dummies" series.
Wiley entered into a brand licensing agreement with American Media, Inc., to publish "For Dummies" branded micro-magazines that will be sold at cash register display racks at mass merchandisers, drug, and grocery chain outlets in North America.
The first 4 titles of the series were published during the quarter.
STM continued to exhibit strength.
Second-quarter revenue of 47 million was up 9 percent from prior year.
Direct contribution to profit of 21 million increased 4 percent.
As expected, gross profit as a percent of revenue was down from prior year, reflecting the effect of society journals.
Year-to-date, STM revenue in the States of 93 million was up 10 percent over prior year.
Globally, STM. revenue increased approximately 11 percent for the 6 months.
General performance was strong, up 13 percent over prior year in the quarter and first half, with new society publications contributing significantly to the growth.
STM books also contributed to the growth, with year-to-date revenue up 6 percent over prior year.
STM launched in Wiley InterScience, the Neuroscience Backfile Collection, and SpecInfo, a spectral database previously available only on CD.
Overall backfile sales have been strong, and several major reference works were made available through Wiley's online service.
Wiley and the Movement Disorder Society signed a long-term contract extension for the publication of its journal, Movement Disorders.
Wiley also reached an agreement with the Society for Hospital Medicine to publish its newsletter and to launch its new flagship journal.
Higher education revenue in the second quarter of 41 million increased 8 percent.
Direct contribution to profit of 12 million was 25 percent ahead of prior year.
Gross profit as a percent of revenue was below prior year, primarily due to inventory costs, while operating expenses were less than in last year's second quarter.
Year-to-date revenue for higher education of 86 million was up slightly from prior year.
Direct contribution to profit of 28 million was essentially flat with prior year.
Higher education's year-to-date operating expenses decreased by 2 percent from prior year.
Fortunately, higher education revenue rebounded a bit in the second quarter.
Market conditions continue to be difficult due to price/value concerns.
Lower return rates for Wiley's higher education business had a positive effect on second-quarter results.
Wiley's innovative online product, eGrade Plus was launched successfully to address some of the aforementioned price/value concerns.
Currently available with 32 major frontless test textbooks, eGrade Plus provides a student with a print and/or online textbook, as well as online study guides and self testing products, which provide immediate feedback to help the student succeed in the course.
With 50,000 units sold, and as many as 15,000 students accessing eGrade Plus at any given time, Wiley has delivered uninterrupted service.
Feedback has been very positive as exemplified by the following comments. "I like that the entire book was online so that finding information was easier and less time-consuming.
Every chapter and section is only a mouse click away, so having to go through the book by flipping pages is no longer an issue."
That's from a student at a community college in Florida.
Another quote -- "Test scores have improved considerably based on the results of the first exam.
I don't know what else it could be besides eGrade Plus, unless I suddenly have a lot better prepared students."
That's a quote from a professor at a Private University in Pennsylvania.
Another quote -- "Give me about 25 (technical difficulty) of time, because I set up my assignments so that my students can immediately see the solution to a problem they get wrong.
This means that I do not need to spend class time reviewing these solutions."
That's from a professor at a state college in Utah.
Wiley Europe's second-quarter revenue of 68 million was up 13 percent over prior year, or 6 percent excluding foreign currency effects.
Direct contribution to profit of 22 million was up 13 percent from prior year.
Year-to-date revenue in Europe of 127 million was 15 percent ahead of prior year, or 9 percent excluding foreign currency effects.
Direct contribution to profit of 41 million was 17 percent higher than prior year.
Continuing the positive trends of the first quarter, journal and book revenue was up in Europe.
In the UK, Wiley's year-to-date sales to Amazon were up 19 percent over prior year, achieving a record month in August.
Sales of indigenous products from both the UK and Germany were robust, as were imported P/T titles.
The Society of Chemical Industry extended its agreement with Wiley Europe to publish its 4 primary journals.
Wiley-VCH in Germany formed an alliance with the Shanghai Institute of Organic Chemistry, a part of the Chinese Academy of Sciences, to publish its flagship journal, the Chinese Journal of Chemistry.
The UK government's response to the House of Commons Science and Technology Committee Report was clearly influenced by publishers' concerns regarding open access and author pays (ph) models.
The government dismissed most of the Committee's recommendations, reinforcing our view that science is best served by a competitive, market-driven approach.
Revenue in Asia, Australia, and Canada of 27 million was up 7 percent during the quarter, or 3 percent excluding foreign currency effects.
Direct contribution to profit was slightly ahead of prior year.
For the 6-month period, revenue of 50 million increased 4 percent, but was flat excluding foreign currency effects.
Direct contribution to profit was below prior year, reflecting the effective lower-than-anticipated revenue and product mix.
In Asia, all of Wiley's businesses contributed to the growth.
Journal revenue, which is recorded in the various publishing operations, was robust throughout Asia, particularly in China, Taiwan, and India.
Revenue was slightly lower than expected in Australia, primarily because of delayed ordering for the school market.
The Australian Campus Booksellers Association and the Australian Publisher's Association have named Wiley as their Publisher of the Year.
Wiley has won these awards consistently over the last 5 years.
Of the 3,000 Australian companies that are required to report to the Equal Opportunity in the Workplace Agency, only 100 have been recognized as having superior human resource policies and practices in Australia.
Wiley has been included in that select group consistently.
And this year, we made the top 5 list.
Wiley Canada's performance was mixed.
Higher education revenue was short of prior year, while Professional/Trade delivered solid results.
In conclusion, I would like to summarize the key points.
Wiley's second-quarter performance was solid.
At the midpoint of fiscal 2005, our overall results were as expected.
STM had a strong first half on the strength of journals and books.
Wiley InterScience continues to be embraced by our customers around the world as we provide more access to more content to more people than ever before.
Professional/Trade gained momentum in the second quarter, and is looking forward to a solid third quarter as a result of the strong front list and deep back list.
Higher education rebounded a bit in the second quarter, but is having a challenging year due to market conditions.
Early results from innovative products like eGrade Plus are encouraging.
Our balance sheet is healthy, and our cash flow is very strong.
With that as background, we welcome your comments and questions.
Operator
(Operator Instructions).
Brandon Dobell, Credit Suisse First Boston.
Unidentified Speaker
This is actually Chris on for Brandon.
I just had a couple questions.
I wonder if you could give us a little more color on what you're seeing in the college market with respect to volume and price and maybe put it in the context of recent trends?
Will Pesce - President, CEO
I would say, Chris, overall, most of the growth that's coming out of the higher education market this year is unit- and volume-driven.
Surely, there have been some price increases.
But overall, I think most publishers have been very careful about increases from year to year.
Of course, there's some effect when you are introducing a new textbook after a revision cycle.
If you compare the price of the new book to when the initial edition or the previous edition was published 3 years ago, you might see some increase there.
But I'm talking about from 1 year to the next, from last year to this year, I believe most of the growth would be coming from volume increases.
That becomes a little bit more difficult to measure these days because of the complexity of the packages that various publishers are offering.
And what I mean by that is very little these days is just a textbook, where you can compare the price of 1 textbook to the price of another textbook or a previous edition.
As we go through revisions of our educational packages, increasingly they are a comprehensive set of additional options for students and professors to facilitate teaching and learning.
My reference earlier to eGrade Plus -- as an example, if you are a student on campus, you could buy eGrade plus and not buy a textbook.
You could buy eGrade plus with a textbook.
You could buy it for 1 semester or 2 semesters.
There are various pricing options available to the student.
So, I don't think it's easy to just do a year-on-year comparison and come up with a percentage increase.
But I'm confident in telling you that overall price increases have been lower this year in comparison to previous years.
And I'm confident in telling you that there's been the growth that I think publishers are getting is really at a volume coming out of more effective packages.
Unidentified Speaker
Thanks that's very helpful.
And if I could just ask one more.
Will Pesce - President, CEO
Sure.
Unidentified Speaker
In the professional and trade business, if you could comment on any behavioral changes with respect to the booksellers and their managing of inventories?
Will Pesce - President, CEO
I would say that there has been an ongoing effort.
And it varies from major account to major account.
But there's been an ongoing effort to control inventory levels.
And for the most part, that's a good thing.
To the extent that our major accounts are more effective in managing their inventory, then of course it cuts down on returns and inventory obsolescence and all those things.
And I think the industry is seeing some benefit from that.
The only cost of the transaction if it's not done exceedingly well is to not have inventory on the shelf when it's needed.
But overall, I'd have to say that -- and it's not just this year.
If you look at a trend over the last 3 years, major accounts have gotten much better at their inventory management.
And the emphasis has been on keeping the quantities down and making sure that the sellthrough justifies the inventories that are being ordered.
I'll just ask if my colleague, Ellis Cousens, has anything else to add to that.
Ellis Cousens - CFO, COO, EVP
Yes, I think that pretty much covers it.
I would just extend that also to higher education, as well.
We've seen some tighter ordering practices and inventory management practices, both P&T and higher education (ph) -- as you know some of their retail is like -- Barnes & Noble also has higher-ed outlets as well that control a lot of that channel as well.
And as a result, as we have noted, there has been an improved performance in terms of return.
And that is reflected in the results.
Operator
(Operator Instructions).
Allen Zwickler, First Manhattan.
Allen Zwickler - Analyst
Just 2 broad-based questions.
And maybe I missed this because I'm only doing 8 things at once this morning.
The combination of books and Internet access at college -- you sort of talked about it a little bit.
Could you elaborate more on that in terms of takedowns?
And now that you've gotten the first semester out of the way -- the September semester, where people have had that option in a lot of places -- how would you say that the students are reacting to it in general?
Will Pesce - President, CEO
I'd say overall, Allen, when students are relying on instructional materials, they are still primarily going to the textbook.
And when I say that, it is a combination of buying a new book, buying a used book, going to the library, and reading from a book that the library has, sharing books with another student.
I think that's a critically important point to note that although we have certainly had to deal with the fact that students have found alternate sources of material, many of them are still relying on the book as the primary source of the information they feel they need to succeed in the course.
Having said that, for a number of years now, there's no major course that I can think of that does not have some electronic product that is tied to the textbook.
It could be access to a web site.
It could be a CD-ROM, and increasingly, services like eGrade Plus.
So it is undoubtedly true that the acceptance of electronic delivery of this material among students and professors is growing.
It is nowhere near being the majority of what's going on on campus.
The adoption process here is not unexpectedly slow, but it's slow.
I think many people make the assumption that the academic community is at the leading edge of change.
And certainly, in certain areas of research, they are.
But when it comes to teaching and learning, you'll find that even the finest educational institutions in the world still very much rely on a lecture format with print material.
And they are using electronic as a kind of an ancillary or as a supplement.
Having said that, the reason I took the time to relay those quotes -- and you may say, well, you know, those are only 3 quotes -- we have a bunch of others I could be sharing with you about eGrade Plus.
I really do believe that we are in a period of change in the higher education market.
I really do believe that the pace of change is accelerating.
And I believe that that is a good thing.
I believe we as a company are very able to deliver high-quality instructional materials electronically.
I think there are a number of benefits to that happening.
And what we have to continue to do is continue to form those terrific relationships with authors, continue to provide the highest-quality information, continue to work with students and professors to help them use that effectively in the classroom.
But this is not a 1-quarter to 2-quarter kind of thing.
This is a transition that's going to take a while.
But I believe we're heading in the right direction, so to speak.
So still primarily print material.
However, increasingly, with electronic components -- and the only reason that's not moving faster is that our customers aren't willing to have it move faster.
And as publishers, we have to obviously be attuned to their needs.
Allen Zwickler - Analyst
Just following up with that, if I could, the fact that there's that migration going on would probably free up cash for you over time, I assume, because you wouldn't have to have as much printing.
And I see that you accelerated the share repurchase in the first quarter, which I think was fantastic.
So are the 2 related, again, on long-term basis, meaning that -- to the extent that there's more excess cash -- the buying back of stock, the larger than last year's buyback of stock is not an aberration?
Will Pesce - President, CEO
A couple of points I would make about this.
In scenarios that we have developed regarding the evolution of higher education publishing -- in those scenarios, we can (ph) imagine a world in which the working capital requirements for that business are not as great as the working capital requirements for the print business -- and specifically in 2 areas there, we're talking about physical inventory, and then secondly, the effect it could have on receivables.
Now, none of that has been developed very, very specifically.
But as we are exploring different business models, we see both of those things as potentially having a positive effect on working capital, that there may be lower price points -- likely to be lower price points.
But with lower cash -- working capital requirements, cash generation could be as good as it is now, if not better.
So I would say that your instincts are right about that.
And we're not really seeing a huge benefit from this yet in our higher education business.
But I certainly see it in just about every scenario of the future that we've been thinking about.
Regarding the Company's use of cash, I think I will ask Ellis to address the repurchase program and how that fits more broadly into Wiley's cash management philosophy.
Ellis Cousens - CFO, COO, EVP
Yes, Allen, as you noted, we had very strong free cash flow last year.
And it's continued into the first 2 quarters of this year.
And you know, we look at cash in sort of a strategic way -- not just the share repurchase program, but looking at how it is we will utilize cash on a going-forward basis, certainly reinvesting back into the business organically; next, in terms of making acquisitions, we've made some small acquisitions in the first part of the year.
So rather than have cash accumulate on the balance sheet, we have a limited appetite to do that -- an appetite, but a limited appetite to do that.
We look to share repurchase and dividends.
And the share repurchase program accelerated in part because of an opportunistic environment with an opportunity to pick up some significant blocks of shares here and there, and we did that.
So there isn't a change in strategy related to the share repurchase program or the use of cash.
It's just a function of what is available in the market at any given point in time.
We do have an open repurchase program.
We've bought about 960,000 shares through the first half of the year, about two-thirds of that in the second quarter.
We've spent about $31 million.
And we have about 2.5 million shares of capacity left in the current program that was authorized some time ago.
And certainly, to the extent that we might have got that (ph) in the near future, we'll go back to the Board and ask for additional authorization.
Allen Zwickler - Analyst
Thanks.
I have another question, but I will wait in the queue.
Operator
John Christiano (ph), UBS.
John Christiano - Analyst
A couple of margin questions here.
First, on the STM business, I know that there's a shift in product mix which is causing the margin to come down a bit -- if you could just elaborate on that?
And then conversely in higher ed, it looks like the margin has stepped up a bit -- if you can just address that as well?
Will Pesce - President, CEO
On the STM part of it, a couple of things going on there.
As I think most of you know -- well, the business is made up of an online service called Wiley InterScience.
There are print journals and print books.
And within the book program, there are encyclopedias, as well as one-off titles.
And the margins for all of those products and services vary.
The reason for the margin slippage in STM -- there are really 2 reasons.
One is society journals are published by Wiley and most of our competitors, if not all of them, at a lower margin than owned journals, but still at a higher margin than some of the other publishing that we do.
And so you are getting a little bit of a mix thing -- still an attractive business, but below the historical rates on owned journals.
2 is I believe there was some effect in the last quarter, and certainly in the 6 months, of imported books in different margins on imported books.
In this case, imported into the states from Europe that has an effect on it.
Overall, we're not looking at anything significant here in STM.
But you could get from quarter-to-quarter or from year-to-year some modest swings depending upon the product mix -- and again, I'll go journals versus books, society journals versus wholly owned journals, and imported versus U.S. product.
Those are the kind of mix things that go on.
None of this is unanticipated or of concern to us.
In higher ed, I think what you're seeing here is not a trend that you should project going forward -- again, from quarter-to-quarter, depending upon product mix, you could get a little bit of as effect there.
Actually, inventory costs in the quarter I think caused the cost of sales to go up a little bit.
That could reverse itself later in the year.
But there's nothing strategic going on there.
I would look back to -- nothing strategic going on there that's going to affect the gross margin, other than what we were talking to Allen about earlier, is that when we have a significant change to electronic delivery, then I think you will see some differences in terms of product development costs and working capital.
But I would not read too much into either 1 of those situations in terms of the fiscal year and going forward.
Is there anything, Ellis, that you would add to that?
Ellis Cousens - CFO, COO, EVP
No, I think that pretty much covers it.
There is some kind of onetime stuff, so to speak, in the quarter -- things that are --it's unfortunate, but clearly, higher ed is performing the below what we had hoped.
So there are some incentive plan payouts and accruals that we've reduced.
And those were in the numbers last year; not in the numbers this year.
So it's kind of a cold facts, unfortunately, of performance this year.
John Christiano - Analyst
And you mentioned, too, that the higher ed market is still challenged.
So I mean you look at the performance of first quarter was weak in the top line, and then it kind of jumped up again in Q2.
But overall, it's still a challenging market.
Will Pesce - President, CEO
That's correct.
John Christiano - Analyst
And then lastly, your recent trip to Asia and China in particular -- can you just elaborate?
Have you changed your view?
Are you more optimistic about that area?
Can you just going into that a little bit?
Will Pesce - President, CEO
Well, I would say to you -- you know, all of these things are relative.
And in terms of my own perspective, which I believe was a realistic perspective, I am as encouraged as ever.
But again, I believe I had a realistic perspective before.
My point in saying it that way is I think people have to be careful about just reading headlines and assuming that you could just set up an outpost and suddenly start driving revenue through the roof because now you have a presence in China.
That's not the way it's going to work in our industry.
And that's not the way Wiley has approached it.
In fact, I stated proudly at several of the meetings that I attended in November that's it was almost exactly 25 years ago that Brad Wiley, Sr., who was then Chairman and CEO of our Company, was one of the first American publishers to visit China.
And in our history, that was a milestone event.
And 25 years later, there's -- I know there's been a lot that we've done in between.
There's another group visiting China.
And the difference between then and now is that the technology is enabling us to deliver more content to more people than ever before.
The Chinese government has put some of the pirates, the people who made unauthorized copies, for example, of our STM journals, have put them out of business, which now means that people who were gaining access to that material are now gaining access to it, but paying for it.
And we've certainly experienced significant growth in STM over the course of the last 2 to 3 years in China.
My reference to -- I mean, it's a pretty startling statistic.
I hope you respond the way I did.
The notion that over 100 universities and research institutions throughout China now have access to Wiley content through Wiley InterScience -- that's the perspective (ph) statement.
And that's not the end.
I think what you're going to find is more institutions signing up and access within the institutions improving.
But the opportunity doesn't end there.
We believe that the Chinese government and the Ministry of Education are genuinely interested in improving the higher education system throughout China.
There's always been an interest in that.
But I think the wherewithal is now there.
And we've had some conversations about what role and partnership with other institutions and perhaps Chinese publishers we could play in helping that.
I made reference to -- we were at Tianjin University.
And we spoke about eGrade plus.
Now, eGrade Plus was launched in the United States in August.
It's being used on a pilot basis in China.
I think that -- you say, okay, that's one institution.
That's right.
It's a beginning.
I believe electronic dissemination of educational content is an opportunity.
Some people, when we acquired Hungry Minds back in 2001 -- Wiley has always been a Company that talks about global brands.
And so, you know, the "For Dummies" brand is not a global brand.
Well, we saw our first translation, a Chinese translation, as I mentioned earlier, in a Shanghai bookstore of a "For Dummies" book.
Now, we had to work on the appropriate translation in Chinese.
But these are just all -- serve as tangible evidence to me that the opportunity exists.
There's a lot of work that still has to be done.
Publishing is of great interest to the Chinese government.
And what gets published and gets disseminated is of great interest to the Chinese government.
And so there are still some hurdles -- and when I say great interest -- that's good news in that.
But they're also very careful about how that information flows through the system there.
So we're working cooperatively.
We're making some real progress -- intellectual property, copyright continues to be an important -- piracy continues to be important there.
We've made progress.
I'm optimistic.
But again, it's not one of these things -- you flip a switch, and then tomorrow, you suddenly see a huge pickup in revenue.
So, you're going to be hearing more about this from us.
I believe the story is positive.
And I believe what you're going to continue to hear is very steady, solid growth in each of our 3 core businesses coming increasingly out of that part of the world.
Operator
Rajesh Chelapurath, Star Capital Management.
Rajesh Chelapurath - Analyst
At the end of the last quarter, could you give me an idea of what percentage of your worldwide STM revenues was web-enabled?
Will Pesce - President, CEO
Well, I can give you something that I think is close to that.
I'm only hesitating because web-enabled means different things to different people.
And I will explain the statistic I'm about give you and what it includes.
It's the best that I have my fingertips.
About 70 percent of Wiley's global STM journal revenue is included in Wiley InterScience licenses.
Now that's a mouthful.
But Wiley InterScience is our online service.
Journals is the biggest part of our business. 70 percent of that journal revenue is covered by licenses.
However, most of our customers are paying for print and electronic access.
So all of our journal content is web-enabled, but not all of the revenue is in STM, because some of our customers still choose to gain access to both print and electronic.
And it is not easy for us to separate out from the license how much of it is print versus electronic.
So that's about the best statement I can make in terms of your specific question.
I would say to you that the STM business is by far the one where we have the most online delivery of content and the most web-enabled revenue.
However, in higher ed, I can't think of a major package that we provide that doesn't have some electronic component.
It's still primarily print, but there's electronic component as a part of the package.
In professional and trade -- the percentage is growing, but it's certainly the smallest percentage of the 3 businesses in terms of web-enabled and some of that is coming out of these various websites that we've developed and should continue to grow.
I know that's not as specific as you probably are asking for.
But I believe it's the best I can give you at this point.
One second --
Ellis Cousens - CFO, COO, EVP
(multiple speakers) qualitatively -- I can't give you a number here, either.
But more and more of our STM book prep (ph) program is moving online as well.
And as we found -- that certainly that information available electronically has increased the demand for it.
So we're encouraged about that as well.
Operator
Matt Hayner, Madison Investment Advisors.
Matt Hayner - Analyst
A couple of detailed questions from the financial statements.
One, I wondered if there's any tax impact on the cash flow from operations, given some of the changes I've seen on the balance sheet regarding deferred taxes.
And then secondly, on the breakdown of the income statement, there were a couple of line items under the shared services and administrative costs that grew a bit faster than the others -- finance and then other administration.
I wonder if you could provide some color on those.
Thanks.
Ellis Cousens - CFO, COO, EVP
On that first question, I think I will leave that to the Q rather than get into a detailed discussion of deferred taxes and the cash impact of that.
I don't really have that embedded in my head yet, quite frankly.
The 2 items in finance in particular -- certainly, we're sort of working in the same direction that lots of companies are.
We have an April year end.
And we're deep in the middle of -- actually, hopefully, past the middle of Sarbanes-Oxley 404 compliance.
We, like many other companies -- most that I know of, in fact, speaking to my fellow colleagues, CFOs in other companies, have resorted to outside consultants to help us and assist us in that project.
And some of that expense is hitting that finance line.
I can tell you that's roughly about $800,000 in the quarter.
And unfortunately, I can also tell you that's not the end of it.
There will be a bit more of that coming over the balance of the year.
In other administration, it's pretty unsexy kind of stuff like compensation accruals or incentive comp accruals in the UK, for example.
Last year, the UK in the early part of the year was not forecasting to hit its plan.
So they didn't have accruals related to incentive compensation.
This year they do.
So it's not attractive or kind of a mind-bending kind of explanation.
It's just a reality of that fact.
Other than that, do you see any other particular areas that you have questions about in terms of --?
Matt Hayner - Analyst
No, actually just those areas.
So thank you.
Operator
(Operator Instructions).
Brandon Dobell, Credit Suisse First Boston.
Unidentified Speaker
My question was actually on the shared expenses as well.
I just wonder as an add-on -- last quarter, you had mentioned some increased IT expenses.
Are you still seeing those?
And do you expect to see those over the next couple of quarters, or are they pretty much done?
Ellis Cousens - CFO, COO, EVP
I'm not sure of the specific discussion.
I mean, certainly our investment in technology continues to grow.
And I don't see that necessarily abating.
Certainly, it's supporting much of the transition to an online environment that Will has talked to so far on the call, particularly with respect to the move to eGrade Plus.
I will say that we've had some pretty significant breakthroughs in terms of how we host and support eGrade Plus that are very encouraging -- highly scalable, economically scalable solutions in terms of how we host that.
So, I think that certainly we'll continue to see expense growth, both in terms of hardware to support our online activity, but certainly in terms of software development.
You know, at the same time, we're looking carefully internally to see where we might be able to reduce expense elsewhere in the business and the Company to offset some of that.
In fact, we've got a function within the Company now that specifically looks at opportunities to improve work processes and how it is we work in terms of operations and producing content.
So, I don't see any extraordinary increases, if that's what you're alluding to.
But certainly, I see steady growth in investment and technology.
Operator
At this time, there are no further questions in the queue.
I will now turn the conference back over to Mr. Will Pesce for any closing or additional remarks.
Will Pesce - President, CEO
Thank you very much for your interest and support and all your questions.
And we look forward to speaking with you again at the end of Wiley's third quarter.
Thank you.
Operator
And that does concludes today's conference call.
Thank you very much for joining us.
You may now disconnect.