John Wiley & Sons Inc (WLY) 2004 Q1 法說會逐字稿

Please stand by.

Welcome to the John Wiley and Sons conference call.

Today's conference is being recorded.

Before introducing Will Pesce, President and Chief ExecutiveOfficer, 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 facts and details in the 10K and 10-Q filings.

The company does not undertake any obligation to update or revise any forward-looking statements to reflect at certain circumstances.

Mr. Pesce, please go ahead, sir.

Good morning.

Welcome to Wiley's first quarter conference call.

I'm with Ellis Cousens, Executive Vice President, Chief Financial and Operations Officer.

I'll begin today's call with an overview of Wiley's first quarter performance.

Then Ellis and I will respond to your questions.

As noted in the press release issued earlier today, first quarter revenue of nearly $220 million increased 6% or 4% excluding foreign currency translation gains.

The year on growth was driven primarily by professional trade and higher education businesses as well as STM journals.

EPS was 35 cents a share compared with 34 cents excluding last year's unusual charge related to the company’s relocation to Hoboken, New Jersey.

Including that unusual charge, EPS was 32 cents per share in last year's first quarter.

Operating and administrative expenses increased 9% over prior year or 5% excluding the combined effects of foreign currency and expenses related to a small web development company acquired in the second quarter of last year.

In addition, the expense growth reflects increases in non-cash items such as depreciation related to our new facilities in Hoboken, the UK and Germany.

For the most part, all other expenses were at or below the revenue growth rate.

Regarding the balance sheet accounts receivable increased from last year's first quarter by 3% reflecting revenue growth and improved collections, inventory increased 4% in line with revenue growth adjusted foreign exchange.

The 7% increase in product development costs reflects investments in a strong front list.

Property plant and equipment increased as a result of the company's relocations in the States and Europe as well as some technology investments.

The reduction in other current assets was tax related while the reduction in accounts payable and other accrued liabilities was relocation related.

I think it's important to reiterate some points from today's press release.

Wiley's first quarter results are consistent with our expectations.

Assuming gradual improvement in market conditions throughout the year, we continue to anticipate mid to high single digit increases in revenue and earnings in fiscal year 2004.

We are operating in a challenging environment.

The retail book sector continues to be weak.

Library budgets are as tight as ever, and tuition increases at many public colleges and universities in the states are having an effect on student spending.

All of that being stated, we have strong front lists and professional in trade and in higher education which are performing well.

We continue to sign new licenses for access to our Wiley InterScience service while adding more content and more features.

We are managing our expenses and balance sheet carefully while making investments in our future.

We're strengthening our competitive positions in the states and abroad and are well positioned for growth as market conditions improve.

I'd like to provide some additional information regarding the performance of our core businesses.

The U.S. professional trade business reported revenue of $76 million which was up 8% over last year's first quarter.

Technology publishing exceeded our expectations for the quarter which is very positive particularly given the performance of some major competitors.

We are clearly gaining market share in the technology segment.

The consumer technology areas are the strongest at this time including digital photography, digital imaging, Photo Shop, general PC technology, windows XP and home networking.

Our 4 dummies brand continues to be very strong.

Dummies.com reached 1 million page views for the first time in May.

In July we published our first Spanish language for dummies in the States and Canada including books on PCs, the Internet, creating webpages, networking and various other technology topics.

Business publishing's performing well on the strength of our back listing, leadership, real estate, finance and accounting.

Psychology and education are meeting our expectations.

Consumer segments are soft which is affecting our cookbooks and travel guides.

By sales outlet, the major chains are flat to down while growth is coming mainly from online accounts such as Amazon.

Our U.S.

STM business was essentially flat with last year at approximately $42 million of revenue reflecting the combined effects of sluggish book sales due to the previously mentioned tight library budgets as well as the impact of the Rowecom bankruptcy on calendar year 2003 journal revenue.

Global STM journal revenue was up 4% even after the effects of the Rowecom bankruptcy.

While the InterScience continues to experience growth as a result of new and renewed licenses, additional content and enhanced capabilities.

The agreement we signed with the China academic libraries information system is a significant accomplishment.

Another noteworthy development has been the successful launch of whilely's polymer back file collection which represents the largest collection of high-quality, full-text, polymer science articles available from any publisher in the world.

It includes 64,000 articles from Wiley journals in the states and abroad dating all the way back to 1946.

Since becoming available, customers from as close as Princeton university to as far away as Australia have gained access to this material through licenses to Wiley InterScience

U.S. higher education revenue of $48 million was up 6% over prior year, a strong front list in life sciences as well as solid results in the physical and social sciences drove this performance.

The partnership that we form with Espasa which was mentioned in this morning's press release will enable us to deliver innovational educational materials for the first year undergraduates Spanish course faster than if Wiley developed it alone.

The program, which includes print and electronic components, will be published in fiscal year '05.

The picture in Europe is mixed.

Journals performed well, particularly for Wiley VCH in Germany.

Impact factors and metric used to determine the importance of individual journals in their fields were very positive for our Wiley VCH journals in many cases reaching all-time highs.

Book sales in the European segment were below expectations, particularly in the UK reflecting soft market conditions.

Book sales did improve somewhat in the last month of the quarter.

Revenue increases in Asia and Canada were partially offset by softness in Australia.

In Canada, our higher education business performed well.

In Asia, growth was most significant in China and India as well as Korea and Taiwan.

We believe some of the softness in Australia is timing.

Wiley Australia's high school publishing operation won publisher of the year for the seventh time in eight years which I think is a remarkable accomplishment.

In closing, at the end of the first quarter, we were where we expected to be.

This will be a year in which our markets will exhibit modest growth.

Wiley's growth will result from market share gains, effective execution of our plans and prudent management of expenses and cash.

We're committed to delivering financially responsible results while continuing to invest in our future.

With all that as background, we welcome your questions and comments.

Thank you.

The question and answer session will be conducted electronically.

If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone.

If you're using a speaker phone, please make sure your mute function is off to allow your signal to reach our equipment.

We'll go first to Allen Swikher (ph) with First Manhattan.

I'm usually last with my name but anyway.

What can I say.

Just a couple of quick questions.

One is in the last couple of releases you talked about the engineering I'm going to call it business or I guess industry or scholar be continuing to be weak.

Could you clarify as to what percentage of your sales in higher Ed is to engineering and what exactly engineering means?

Sure.

When I refer to that over the last few quarters, I was specifically talking about educational materials primarily for the undergraduate market in the United States.

So it would be textbooks and related electronic components.

And my comments about that have been that we've been in a period of time where enrollments have been flat to declining in U.S. institutions of higher education and that has an effect on our business in terms of the instructional materials.

That continues to be the case.

It approximates 20% of Wiley's higher education business, not Wiley's total revenues, 20% of Wiley's U.S. higher education business.

And I should also point out to you just as an add-on in response to that question that the engineering market has been more robust outside the United States than it has been inside the States.

We continue to do reasonably well with the engineering discipline in Canada, for example, but also in Europe and in Asia.

Lastly, I would just comment that as I pointed out in prior meetings, as a result of these market conditions, we have refined our publishing strategy in that particular area.

And specifically we are honing in even more carefully on the higher enrollment courses in the States.

So we've already pretty focused published, but even more so there.

We're looking even more than we had in the past on some technology-based solutions to teaching and learning which we think will provide more value added.

I would like to emphasize that despite these current market conditions, we continue to believe that engineering publishing, which has been a core area for Wiley for a long time, is still a good place to put investment.

I think in these kinds of conditions you refine that investment and you adjust the business model a little bit to be sure that you're, you know, capitalizing on the opportunity that exists.

If I could just have a quick follow-up.

Sure.

How does one measure Wiley InterScience?

Is it clicks?

Is it -- you know, just understand when you talk about the growth, the number of full text accesses increasing over 40%.

I mean, could you give us some, you know, some way to understand what that means?

Sure.

Whether it's dollars, whether it's units, just to understand, you know, how that works.

Yeah.

Excellent question and, you know several different dimensions to this in terms of response.

One is the way we measure success there is evolving as the business is evolving.

As I've pointed out to people, when we started this service, we started making the investments in the service about five years ago while Wiley InterScience was not a project with a beginning and end, it was going to be a way of life.

One of the things that I'm very excited about is that the service embodies a lot of what I think is right about what STM publishers in particular are doing these days, and that is we're digitizing content, we’re introducing new business models, we're providing more value added to our customers.

So there's no one metric.

We try to provide to you in earnings releases and in other documents some sense of some measures of usage and how many people are gaining access to how many articles.

We look at, for example, the amount of business that is now covered by Wiley InterScience licenses.

And what I mean by that is if you take the print and electronic revenue that we're getting from our customers, what percentage of the total business is now covered by that.

And it could be print and electronic in these licenses.

Most of our customers still want both.

And that's now over 60% of Wiley's journal business in STM is now included under Wiley InterScience licenses.

If you go back just a few short years, it was an immaterial percentage.

So sadly, I can't give you one simple metric.

What I would say to you is what we look at, ranges from measures of usage, that goes everywhere from the number of people to enter into licenses and gain access to it through licenses with their institutions, how much time they spend during their searches, the areas that they're going to when they're doing those searches, and we monitor that on a daily basis.

The leadership team here looks at it on a monthly basis.

Then we also receive very detailed trip reports from our account representatives who get qualitative and quantitative feedback from customers about how they use the service.

And I think over time, you're going to see that we'll continue to refine those metrics as -- it's a new business for us as we become more familiar with the best way to measure.

But that's what we're looking at right now.

And but when someone uses Wiley InterScience, are youlosing, you know, is it, you know, a zero -- you know, a zero-sum gain, meaning that they're not paying you for something else?

No, it's not a zero-sum gain, but I would mention a couple of different things that affect, you know, ultimately revenue for STM journal business.

And it kind of goes like this.

One is that let's forget electronic for a moment.

In the old days a few years back when it was just print, you had new journals that you were launching, perhaps additional issues that you were publishing, you had the effect of price increases, all of those things had a tendency to contribute to the growth on the top line.

Offsetting that would be attrition.

And that could range in any given year from as low as 3% to maybe as high as 5%.

It varies from journal to journal.

But that's the way that business was conducted.

And net-net, there was an increase coming out of price, more content, more frequency.

And, you know, offset to some degree by attrition.

In the electronic world, you have a couple of things going on.

There's no doubt that by having an online service, there's more attrition in terms of print.

You know, more and more of our academic and corporate customers are converting subscriptions to online.

That is not a surprise to us.

So you are losing some of the print revenue that you may have gotten before.

Price increases overall for our journal business, whether it's print or electronic, as in the industry in general are more moderate than they were three or four, five years ago.

The revenue increase is coming from the incremental revenue we're getting by signing licenses for both print and electronic.

There's a premium that is charged for that access to print and electronic, and many of our customers like having that.

In addition, since we launched the service commercially, we've been adding new features and new capabilities that become enabled if you will, by the technology.

For example, you can now gain access to individual articles for a fee.

That's beginning to open up some revenue streams that did not exist before, compensating for some of the attrition on the print side.

That's just to give you, know, another example.

I referred -- we wrote both in the earnings release and also I mentioned in my comments that we launched this backfile collection.

What that means is we went back and digitized content.

There's an investment made to do that.

We digitized content making it available to customers now in electronic format.

Before it was only available in print.

And customers are beginning to respond positively to gaining access to that and we're beginning to generate revenue on that investment.

So all of those things come into play and will ultimately drive the revenue growth of that business.

Thank you very much.

You're welcome.

We'll move next to Brandon Dobell with Credit Suisse First Boston.

Morning, guys.

How are you?

Good.

How are you?

Good, thanks.

A couple of quick ones, revenue growth for global STM if we exclude foreign currency.

And second quick one, if we could kind of break out what the impact of foreign currency on profits was in the quarter, and then I have a couple of more involved follow-ups.

Thanks.

Okay.

I'll answer the first part of STM, then perhaps Ellis could address the profit effect.

The number for -- I quoted a global STM journal number as being up 4%.

If you take out -- it's actually between 4 and 5%.

If you take out the currency, it's between 2 and 3%.

And the book number for global STM was, I think, Ellis, pretty flat.

Yeah.

Globally.

So, you know, overall, you're talking about, without currency, 2 to 3% growth, somewhere in that percent for STM.

On a total basis, Brandon, as you may recall, whereas we get a positive impact on revenue and foreign exchange, basically almost reverses itself entirely on the expense side.

So by the time we get down to the bottom line, the effect is about 0.

In this case it's about $200,000 on the quarter.

Okay.

Thanks.

A little more involved, in terms of professional and trade, I wonder if you could go into a little bit of detail, you talked about the major market segments, maybe give us some sense of kind of what the contribution levels are -- how you think about what those major markets are and what the relative contributions of what those major markets look like.

And then in kind of a similar fashion, on the STM side, I've got a question a couple of days ago from somebody asking about kind of journals owned versus journals kind of rendered or leased from your perspective, maybe talk a little bit about what the breakout there looks like and if there's any real difference in the business model or the accounting or the I guess most importantly, the margins for journals that you own or don't own.

Okay.

This is Will.

I'll start with professional trade and provide a couple of comments about that.

We are now the number one technology publisher, and you may say or some of you may think well, this is the rough time to be the number one technology publisher.

Surely the marketplace is not terrific right now, although we're seeing some indications that it's stabilized.

Before the Hungry Minds acquisition we made in September of '01, Wiley was in this segment but we were mainly on the high end, the professional side.

It turns out, frankly, that's been, by far, the most difficult and slow growing segment.

When we acquired Hungry Minds in 2001, we factored in the market conditions at that time and throughout our acquisition projections.

And we did a very good job of that as history is now beginning to play out or has played out.

So we actually feel pretty good about that investment.

It's a good margin business.

It's nothing growing.

In fact, the marketplace has been declining, but we've been steadily gaining market share.

I made that comment in my opening remarks.

That is very well documented.

We now have good information that we get from our major accounts that indicates that we've done very well in the for Dummies brand is a big part.

Technology is an important part of what we do.

Unfortunately, I think we got into it in a bigger way at a good time and that was reflected in the valuation that we put on that acquisition which we continue to be pleased about.

So we're a major player from the consumer end as represented for Dummies right up through the professional end of technology publishing.

We -- I mentioned business publishing.

That's another important category for us.

We're probably right now number two in that segment.

And there we're talking about books for people like the folks who are on the phone, people who are interested in business and leadership and in investing and strategy.

That kind of publishing.

We also do some in real estate and have done well there and also in accounting.

That's an important segment.

We're now a major publisher, as a result of the Hungry Minds acquisition, in the cookbook area.

Before many of you know, we were -- and continue to be a leader in the professional side of that market through our association with the Culinary Institute of America, something we're very proud of.

We're now also a significant player on the consumer side.

Through brands like the Betty Crocker brand, and we have terrific relationship with General Mills.

They have invested heavily in that brand.

We've been very pleased with the results there.

We also, as you know, are a significant player in areas mainly on the professional side and, for example, architecture and psychology.

Also I mentioned business early, but also on the professional side of accounting.

I should point out to you that Wiley's professional and trade business, which, gosh, I guess about was really started about 18, 19 years ago, has been, by far, the fastest growing part of our business.

That has been mainly accomplished through organic growth but it's been complemented, I think, nicely with acquisitions in recent years.

Hungry Minds being the most significant.

And what we have now, I believe, is some diversification within these various categories, and we have a deeper lists in the sense that being a vertical publisher, we address many of the consumer sides of those markets, but also the higher end.

And, again, just to repeat, we don't do any fiction publishing in any of those categories.

That's really all I have on the professional trade side of your question.

In journals, with journals, I believe you were trying to get at the mix between owned journals vis-à-vis society agreements that we may have.

Right.

And historically, society journal publishing has not been as significant at Wiley as it has been at some other companies.

However, in the last few years, we have looked at that as an opportunity to develop our journal program.

And frankly to gain access to more content.

And, you know, the obvious strategic rationale is that with an online service like Wiley InterScience, the more journal content that we can provide, we believe we're providing more value add to our customers.

We're providing the capability to gain access to that material.

And we obviously can take the investment across that entire service against more content.

That's obviously a good thing for us to do.

So the percentage of the business, I actually don't have the number at my fingertips.

But it's not a material percentage of Wiley's revenues, but it's certainly -- and I'm talking now about society-based journals.

But it's been a growing percentage.

And that's likely to continue over the next, let's say, three to five years as we look to acquire more of that content, and that's content that's currently being published by some of our competitors, and we've established a pretty good track record, I think, in competing against some of our competitors in signing these deals.

In terms of the economics of society journal publishing vis-à-vis the wholly owned, you know, the cash flow characteristics of that business are basically the same.

What I mean by that is, you know it's primarily a subscription-based business and you receive the cash up front, low working capital requirements in fact, negative working capital.

The operating margins on society journal publishing is significantly below the operating margins on wholly owned journals.

But I would point out to you that society journals still have higher operating margins and more positive cash flow characteristics than, for example, book publishing.

So if you're looking at the realm of opportunities in terms of delivering content, you have wholly-owned STM journals with its attractive financial characteristics and you have society-based journals, a little bit relatively speaking less attractive and then you have book publishing.

We think our makeup of businesses are all very attractive, but they bring different compensations.

Is that helpful, Brandon?

Yeah, that was very good.

Thank you.

Next we'll move to Sammy Kathan with BMT (ph)

Good morning, gentlemen.

Good morning.

I have two questions.

First, could you please comment on the development of textbook returns in the higher education segment and hear whether you have seen any particular increase through this quarter.

And secondly, could you elaborate on the impact of weaknesses in student spending especially on the used book market.

Have you seen any increase in competition from the used book markets?

Thank you.

Nothing significant to mention about textbook returns at this stage of the game.

There's no indication that that situation is changing materially.

Just as a reminder, for people in terms of the ebb and flow of that business, July, August are important months in that business as the bookstores, order books for students coming on campus in September.

September usually has in the first half of the month a significant reorder to fill in inventory.

October is a returns month.

And in November, it begins to build again.

And December and January are big for the winter semester.

And then you move to February, March and April, which are primarily returns months.

So that particular pattern hasn't really changed much in the higher education business in sometime.

But we're not seeing any indications at this stage of changes in trends with returns.

My reference to student spending has to do with the following.

It's well documented that public institutions of higher education in the United States are dealing with significant budget gaps having to do with problems the states have with the tax revenues and other issues.

And so I don't think there's a major public institution in America that has not had significant cutbacks in funding.

And that's generally reflected in library budgets and also reflected in higher than average tuition increases.

In turn, the parents of many of these students, we all know what the economy has been encountering, and many of these people have less discretionary income.

So what I believe is in the calculus here, as we think about it, is that students will continue to look for bargains.

They will only buy the materials that they feel are absolutely essential.

To get through the course.

We may find, through the next semester or so, more sharing of books.

There have certainly been some issues we've had to deal with the re-importation of textbooks from abroad back into the United States.

You know, none of these things are entirely new.

The reference to it in my opening remarks was just context and perspective that maybe is a matter of degree.

It's a little bit more of a challenge than it had been in the past.

In terms of used books, you know depending on the particular course, that's a bigger deal at the introductory level than at the advanced level.

They can -- used books can range anywhere from 25% to maybe in some courses as high as 35% of the total market.

During periods of economic distress or where there's less discretionary income, used books tend to go through a period of growth.

It wouldn't surprise me if that occurred.

Countering all of that, you know enrollments are good, and U.S. higher education, we're having some good success outside the United States.

We, as you know, publish in the hard-side areas, and that content generally is the kind of content that students buy the book to help them get through the course.

We're doing more with technology than ever.

Which I believe is helping.

And right now our higher education business is tracking very nicely to our own expectations.

Thank you very much.

You're welcome.

Next we'll move to Eric Becker with (inaudible) Asset Management.

Hi.

I had a couple questions on margins.

In particular, in Europe where we saw some compression, and I wasn't sure how much of that might have been tied to currency or not.

And then on the expense side the 12% increase in total shared services, if you could provide a little bit more detail on that, I'd appreciate it.

Sure.

I'm going to ask Ellis Cousens to address both of those questions.

Yeah.

Let's kind of go to shared services first.

You know, the increase in shared services, as you know, is 12%.

The biggest component of that is coming certainly from technology from the technology side, information technology and development.

And I mean, there are a couple of aspects to looking at that.

First a little bit of context.

As you probably all know, the business is transitioning, or components of it is transitioning from a physical, purely a physical distribution model over time into a bit more electronic based, the discussion about InterScience kind of alludes to that.

So if you take together, I would at least take together kind of the increase in distribution and increase in technology and look at those together.

That technology spending is not generally -- the increases there are not related to things like warehouse management systems and those kinds of things.

It relates more to delivering content to customers.

So if you look together with that 2% increase in distribution and a 38% increase in technology, it's still a big number.

But it's not, quite frankly, as significant as it looks.

However, there were some one-time items, I'll call some one-time items associated with that increase.

One of which we alluded to in his opening remarks which has to do with the web technology company that we purchased in August of last year.

So much of that purchase price is being amortized into the P & L. So this quarter we have sort of a year on year effect which is kind of one time.

So we'll see that sort of lapped in the second quarter.

And that's about $700,000 or so.

Also, there's been various discussions that we've had over the last few quarters about us consolidating or centralizing the management of this web publishing technology group in the company.

And that reorganization was fully affected in the second quarter of last year.

Again, there are some first quarter spillover, some of that expense is sitting up in the business units and not sitting down in shared services.

So it's sort of an unfair comparison, so to speak.

And that's worth about $800,000 or so.

There's also a little bit of timing associated with some software maintenance licenses that will sort of catch up over the course of the year.

And a little bit of extension impact.

If you take all of that together then first of all, that 38% looks a lot more palatable and also shared services in total looks a lot better.

So I don't feel badly about that 12% increase versus a 6% or so increase in revenue because there are some one-time impacts associated with that.

The -- you know, the margin excluding exchange, margins were about flat year on year.

So there's not really much to say with respect to specific elements or items related to that.

So if you extract exchange from that margins were about equal year on year.

Great.

In Europe, sorry.

Great.

Thank you.

Which, your question was about Europe, right?

That's right.

Yeah.

And as a reminder to our audience, please press star-1 if you do have a question.

Move next to Andrew Sidelly (ph) with William Smith company.

Good morning, gentlemen.

Good morning, Andrew.

I was wondering if you could comment a little bit on the acquisition landscape.

I know a year ago there were unique properties that were kind of up for sale.

And. just want to get for feel for whether things are better, the same, not as good?

Well, I think overall, the deal flow is not very strong right now.

That doesn't mean that there are not some niche opportunities out there.

They may not be kind of headline grabbing opportunities, but frankly, the kinds of acquisitions that historically Wiley has made, there are some of those out there.

You know, we are very actively looking at different situations.

And I would just remind people that, you know, when we do that, first and foremost, it must make strategic sense.

And that seems like, of course, it must.

But we're not going to just buy something, you know, growth for growth, buy something that we bring either capabilities or expertise to or that the acquisition would bring to Wiley and we will continue to be financially very responsible about that.

I think our record speaks for itself in that respect.

Then you execute like crazy fuss about the details and to make those plans happen.

So I think the deal flow is certainly it's light right now.

But we're continuing to monitor different situations.

The priorities for us, I've spoken about in the past, we have a lot of conviction about these three core businesses.

Yes, the market continues are not as robust as we'd like them to be, but we don't see that as a long-term issue.

To the extent that we can find either more content or capabilities in STM, specifically the kind of content we could flow through Wiley InterScience or more higher education content, printer electronic and or some niche acquisitions in professional trade in the United States or Europe, those would be the priorities we'll continue to focus on.

But, you know, you're right.

Well, I don't know that -- you're kind of underneath the statement.

My feeling is you probably think it's a period that's been pretty light.

I think that's fair.

But that doesn't mean it's without opportunity.

Do you find since the deal flow is really kind of shrunk some, or declined, do you see yourself possibly coming a little bit more active, say, like on a buyback front or maybe accelerating debt repayment, things like that?

Well, I'll start with response to that and encourage Ellis to jump in.

You know, first and foremost, we look for ways to invest our cash to drive organic growth because we love the return on investment on these businesses.

You know, next we certainly -- and it's not how we do it exactly in this linear way, but we look for opportunities that I just mentioned on the acquisition side.

We also look at the buyback program not only as an opportunity to effectively use our cash, but, you know, depending on market conditions, obviously there are certain times that that makes an even better investment than another time.

So we look at all of these things together.

Paying down debt, you know, from my point of view, is very low on the list of priorities.

Given the very favorable rates we currently have.

But Ellis is much closer to this than I am.

Yeah.

I mean, I would just comment that we're sort of, you know, calling sort of a big landmark deal, there is a flow of smaller deals that do sort of pass before us and happen from time to time.

So there is a certain level of smaller deal flow, so to speak.

I'll also make note that we did substantially increase the dividend 30% in the last quarter.

So there's -- you know, a return to cash to shareholders that way and accelerated return to cash to shareholders, that level of increase was entirely related to change in tax law.

The piece of it that's above what one might come to expect in terms of dividend increase.

That certainly was in the purview and prerogative of the board to make those kinds of decisions.

With respect to share repurchase it is certainly an option we have an open program of 4 million shares that we haven't even gotten to yet.

There's a few tens of thousands of shares left on a previous program.

So certainly there's a lot of capacity to share repurchase as we see that that is an opportunity to put cash in that direction.

As kind of well alluded to, debt in this market is really cheap.

It's certainly floating rate debt for us now but floating at a rate just below 2%, and money doesn't get much cheaper than that, quite frankly, not in most of our lifetimes, at least.

So to the extent that the cost of debt remains roughly at that level and we can find other ways to dispose of cash to shareholders in a lasting way, then we do that.

Certainly if I saw, you know, the rate of increase or the increase in the cost of debt increase dramatically, then we'd have the flexibility to be able to address that as well.

Thank you very much.

You're welcome.

Next we'll move to Matt Haner (ph) are Madison Investment Advisers.

Good morning.

Good morning.

I've read some accounts where some pockets academics, where biotech research in particular, we're considering making the research publicly available over the Internet for free.

Can I ask the threatening possibility of the journal industry?

I wonder what you see and how widely other STM publishers were protecting against this threat?

Sure.

There have -- a number of groups involved or interested in the STM journal business and the publishing of content.

They have various names.

I think broadly speaking, we're talking about groups that support the so-called open access, meaning making more of this research available to more people as easily as possible.

And I'd make a few comments about that.

You know, one is that there has been more coverage of this -- these groups and their interests over the course of the last few weeks and months.

That has been triggered by a couple of different events.

One had to do with the introduction of some legislation from representative Sabo from Minnesota having to do with this area.

And I'd make the following points about it.

One is open access is yet another business model in the area of the dissemination of scientific technical and medical information.

It is very much an untested business model.

And we ought to understand that that's what it is.

It's hard to argue with, you know, more access of information to this kind of information.

In fact, I think every single STM publisher, whether they were not-for-profit or commercial, would all rally around that and are rallying around the importance of that.

When I say it's untested, I think the main issue there has to do with sustaining the investment required to acquire, develop and disseminate the material that we're talking about.

And I would remind people that what not-for-profit and commercial publishers invest in when they're doing this, certainly in recent years digitizing content.

You know, we wrote in the press release, I commented on it in my opening remarks because it's symbolic of the way I think the business is developing.

To invest in this polymer backfile collection, to go back to 1947 and to digitize that content and to have it available in a way that people can gain electronic access to it is my definition of creating more value for customers than they were able to get in a print world.

Now, it takes intellectual investment to conceive the idea, and it takes financial investment to deliver the idea.

The open-access movement talks about, you know, funding the dissemination of content either out of the research grant that was originally underlying the research in the first place and or payments from authors.

And whether or not American citizens or the U.S. government is in the right position, so to speak, to make that kind of information and make that kind of investment available is subject to all sorts of debate.

Whether or not authors will be interested in making up-front payments to disseminate or publish their journals is another matter.

In addition to digitizing content, publishers have worked together to create services like CrossRef which allows-- if you are a researcher and you have a license to this material to move seamlessly from one publisher's journal to another publisher's journal if you're doing research in a particular area.

Again, significant financial and intellectual investment.

The peer review process is essential to what we all do as STM publishers.

This is not vanity publishing.

There's a very rigorous process of getting this information reviewed, and it has to be, you know, being included in these journals and these widely-recognized brands.

It is a seal of approval about the integrity of the research.

It's a validation process, once again, intellectual and financial investment.

You know, a comment I've made several times during the course of these conference calls, I have as much conviction about today as I've ever had.

And that is that if STM publishing, and I'm not just talking about Wiley, I'm talking about it as an industry.

If we were all conducting this business as we were many years ago, then, I think, you know, we'd have to be deeply concerned about the need for these kinds of movements and where they were heading.

But I can tell you, with absolute conviction, that this business is as customer centric as it has ever been.

We're all spending much more time with the library community as well as with individual scientists understanding their research needs.

We are investing quite a bit in enabling technology to add value to the services that we're providing.

And I think all of that adds up to evolving models that are working and are reflected in some of the metrics that we share with you about Wiley InterScience.

Do I believe that we will be hearing more and more about open access and the interest?

Absolutely.

I believe we will be hearing more and more about it.

And I think, you know, you don't necessarily hear a lot from publishers about that because we don't necessarily think writing articles and editorials was always the best way of addressing these things.

We think having business models that work is the best way to address this and to have customer-driven business models that work.

So it's real, it's out there.

Please don't take anything that I'm saying as being, you know, we're not interested or concerned about it.

We're concerned about serving customers better, and we at Wiley are working very hard at doing that.

And there's lots of evidence that we are doing that.

And as a result, our content is more accessible than it's ever been to customers that need it in the United States and abroad.

Great.

Thank you very much.

You're welcome.

And as a final reminder to our audience, press star-1 if you have a question.

We'll take a follow-up from Brandon Dobell of Credit Suisse First Boston.

Hi, guys.

One quick follow-up.

Well, if you could give us a break-out on the business on the STM U.S. what the major customer categories are, you've mentioned corporations and libraries, are those the two main categories?

And if so, kind of what does the relative contribution look like from each of those, or if there's a third or fourth category that is material in there as well?

Thanks.

Yeah.

In the United States and frankly around the world, this is still an institutional business, meaning academic and corporate libraries who have interests in scientific and technical and medical information.

And so in terms of categories of businessing -- and this does not change when you're going outside the States -- the biggest slice of the business would be academic institutions followed by the corporate libraries and institutions as institutions.

And there is a growing but still very small revenue stream, you know, coming through individual article supply where you could get an individual who's interested in a particular subject area that maybe would not have access no that material through a subscription in a library.

But that is really a very small part of what we're talking about here.

And going forward, we still see for, you know, if you're looking at a horizon, let's pick a time period, a three-year time period as an example.

We will still be dealing primarily with institutions who represent individuals interested in this content.

Increasingly, we are negotiating licenses with academic consortia, groups of institutions working together.

And we've been successful in negotiating licenses with those people, with those institutions ranging anywhere from 1 to 2 to 3 years.

And the benefit of dealing with consortia are surely the negotiations are at times very challenging, but the benefit of it is that some of the smaller institutions for fee are gaining access to some content maybe they weren't able to get before.

And over the long term, we see that as a benefit.

But, you know, it is and will continue to be primarily an institution-based business and there will be some individual revenue streams, but I don't anticipate that that will be a material part of the business.

Okay.

Thanks a lot.

You're welcome.

And there are no further questions.

Mr. Pesce, I'll turn the conference back over to you.

Okay.

I just want to thank you all very much for your continued interest and support.

And we look forward to speaking with you again in December.

Thank you.

And that does conclude today's conference.

Again, thank you for your participation.