John Wiley & Sons Inc (WLY) 2008 Q1 法說會逐字稿

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.

Mr.

Pesce, please go ahead.

Good morning and welcome to Wiley's first quarter conference call.

I am with Ellis Cousens.

I will provide an overview, then we will respond to your questions.

After a strong beginning and finish in fiscal year 2007, we begin this year with mixed results.

The Blackwell acquisition exceeded our expectations in the first quarter.

The integration process is proceeding smoothly and the business is performing well.

This is very good news.

Our global professional trade business reported solid results.

Global, scientific, technical and medical revenue excluding Blackwell was up 4% from prior year including favorable foreign exchange.

After a strong performance last year, Higher Education reported disappointing sales in the first quarter.

Including Blackwell, first quarter revenue increased 48%.

Excluding Blackwell, revenue increased 3% over last year's strong first quarter or 2%, excluding favorable foreign exchange.

EPS was $0.68 compared to $0.38 last year.

New legislation reduced the UK corporate income tax from 30% to 28%, resulting in a $0.26 per share tax benefit mainly attributable to the intellectual property acquired with Blackwell.

Excluding Blackwell and the effect of currency, operating expenses increased from last year's first quarter by only 4%.

Cash flow after normal investing activities was significantly below prior years due to be Blackwell acquisition, specifically the effect of deferred revenue.

The increase in receivables is mainly due to topline growth, a onetime increase in day sales outstanding and the effect of currency.

Significant reprints of professional trade consumer titles contributed to the year-on-year increase in inventories.

Increases in product development, accounts payable and royalties payable reflect the effect of business growth and the timing of payments.

Property, plant, and equipment increased as a result of purchases of computer hardware and software as well as facility construction costs in the UK.

The increase in accrued pension liability was mainly due to the adoption of FAS 158 and the Blackwell acquisition.

Based on first quarter results, leading indicators and market conditions, we continue to forecast revenue growth in the mid- to high single digits and EPS growth in low double digits, excluding the Blackwell acquisition and the aforementioned tax benefit.

I would like to provide some highlights regarding the performance of Wiley's core businesses.

Scientific, technical, and medical revenue of $56 million was flat with the previous year's first quarter, mainly due to the timing of journal, book and backfiled releases.

Excluding Blackwell, global STM revenue was up 4%.

Direct contribution to profit decreased from prior year in the quarter, mainly due to the topline results.

Several new enhanced access licenses were signed by academic and corporate customers around the world and journal license renewals were healthy.

STM signed several new, renewed and extended contracts with societies to publish their journals.

Wiley is one of five STM publishers involved in a pilot project known as [Crosscheck] which is designed to detect plagiarism in submitted journal articles.

We reached an agreement with the Howard Hughes Medical Institute, a major private contributor of biomedical research to deposit into [Pubmed Central], the National Institutes of Health Digital Archives, peer reviewed articles that are based on their funded research.

Wiley will be paid directly by the Howard Hughes Medical Institute.

Language to modify the National Institutes of Health public access policy was included by Congress in appropriations legislation that mandates deposit of articles based on NIH-funded research, after a 12-month embargo period.

Due to the efforts of publishers, including Wiley, the bill requires that the policy be implemented in accordance with copyright law.

The Copyright Alliance recently issued a statement in support of our position.

The German legislature announced and I quote "that given the predominantly effective competition in the market for scientific information, public intervention is not advisable."

The value of our contents to the scientific community is evident in the recently announced Thompson ISI Journal Citation Reports, an independent ranking of impact factors that measures how frequently a journal's articles are cited by researchers.

Together, Wiley and Blackwell have over 300 journals in the top 25% of their subject areas.

Many of our journals reported year-on-year increases in their already strong impact factors.

Wiley and Blackwell combined now publish more journals in the Social Science Citation Index than any other publisher.

In the field of nanoscience and nanotechnology, Wiley-VCH's Journal received the highest initial impact factor for a journal specializing in the field.

(indiscernible) International Edition increased its already impressive impact factor further strengthening its position as the No.

1 chemistry journal that includes original research and reviews.

Advanced Materials -- another Wiley VCH journal -- is the second most cited journal in material science.

Professional trade revenue for the first quarter advanced [to] 7% to $90 million.

This solid performance was driven by sales in technology, finance and architecture.

Brand licensing and publishing rights continued to contribute significantly to the growth.

Globally professional trade revenue increased 6%.

Direct contribution to profit increased from prior year by 13%, lower provisions for royalty advances reflecting improved sellthrough contributed to these results.

Sales were strong in the online channel, particularly Amazon.

Barnes & Noble had a solid quarter.

Sellthrough in the national and wholesale channels has been stronger than last year.

In mass-market we shipped our biggest back to school program yet, featuring backlists and proprietary editions of Webster's New World.

In June, Wiley sponsored a dinner in recognition of the 75th anniversary of Architectural Graphics Standards, the 150th anniversary of our partner -- the American Institute of Architects -- and of course, the 200th anniversary of John Wiley & Sons.

This is a wonderful example of Wiley investing in enduring collaborative relationships.

Higher Education revenue of $44 million declined $4 million from last year's strong first quarter.

In addition to the comparison to a strong prior year period, college bookstores appear to have ordered more conservatively for the fall semester than in the past.

There's also increased evident that reimportation of college textbooks is having a negative effect on U.S.

revenue.

The performances of Microsoft official academic course titles and WileyPLUS were among the bright spots in the quarter.

Given the increased penetration of WileyPLUS approximately $1 million of additional revenue was deferred this quarter as compared to the first quarter of last year.

During the quarter, we completed our first successful class test of WileyPLUS in China.

The user base in Australia is expanding rapidly.

New adoptions in Singapore and Malaysia have added to the customer base in Asia, particularly in the technical course areas.

Several key textbook revisions are planned for the spring semester of this year, which should have a positive effect on higher education's results in the second half of this fiscal year.

Wiley Europe's revenue of $76 million was up 5% for the first quarter, but only 1% excluding favorable foreign exchange.

Strong professional trade revenue was partially offset by the timing of STM publications and lower advertising and backfiled revenue.

Direct contribution of profit was below prior year by 4%.

Excluding unfavorable foreign exchange, product mix and increased royalties contributed to the shortfall.

The publication of eight travel titles in the UK accelerated the global expansion of our travel guide program, and strengthened the position of the Frommer's brand in markets outside North America.

Blackwell's revenue and operating income for the first quarter of fiscal year 2008 were $116 million and $15 million, respectively.

Included in these results are $6 million of amortization charges for intangible assets and financing costs of approximately $16 million.

Leading indicators related to the Blackwell acquisition are positive.

In a relatively short time since the acquisition, we have acquired important contracts for journals previously published by competitors or self-published by societies.

In addition, we have retained and extended existing relationships with some of our society partners.

During the quarter, the merger of Wiley's STM business and Blackwell continued, with particular emphasis on the integration of systems, processes, policies and procedures.

Since July 1st, all Blackwell books and reference works are being sold and promoted by Wiley's salesforces throughout the Asia-Pacific and Europe, Middle East and Africa regions, resulting in opportunities to generate incremental revenue and cost synergies.

We have also consolidated the institutional and corporate salesforces.

Critical decisions concerning publishing technology systems have been made and communicated.

We are harmonizing financial management systems and reporting; content management; customer service and fulfillment; and customer databases.

We have a plan for the integration of our online journal platforms which will be executed with a combination of internal and external resources.

Wiley's revenue in Asia, Australia and Canada advanced 14% to $32 million or 9% excluding favorable foreign currency.

The year-on-year growth was driven by strong sales across all businesses in Asia, higher education sales in Australia, and professional trade results in Canada.

Direct contribution to profit increased over prior year.

In summary, Professional Trade began the year strongly.

We believe that STM is poised for growth during the balance of the year.

We experienced soft sales in Higher Education which we expect to improve in the second half of this fiscal year.

We are very pleased that the Blackwell acquisition is performing well and we reaffirm our guidance which indicates healthy growth in revenue and EPS.

Frankly, I believe that is the most important message at this point in the year.

In closing, I want to share a few thoughts about Wiley's bicentennial.

I have had the privilege to participate in business reviews and bicentennial celebrations in the States, Canada, the UK, Germany, Russia, Singapore and Australia.

While each of these events reflects local customs, they are truly a celebration of Wiley's unique culture and rich heritage.

Colleagues with diverse backgrounds, political views and religious beliefs are united as proud members of the Wiley community.

Since I arrived at the Company 18 years ago, I have been speaking passionately and with conviction about Wiley as the place to be.

My interaction with our colleagues during the course of this bicentennial year has confirmed my strongly held belief that Wiley's culture is indeed a powerful source of sustainable competitive advantage.

With that as background we welcome your comments and questions.

(OPERATOR INSTRUCTIONS) Drew Crum with Stifel Nicolaus.

Will, I wonder if you could start with maybe a global question for the Company.

If we are in fact on the break of a recessionary period or an economic slowdown, if you could perhaps revisit or discuss your businesses and the portfolio and how you think they perform in a period of economic slowdown?

Sure.

I think one of the real advantages of a company like ours is that we are relatively insulated from swings in the economy.

So as I have said in the context of this Company's long history, we have survived and indeed thrived through the Great Depression and the ups and downs of many economic cycles.

I believe the reason for that is the nature of the content and services that we have and the fact that we are truly a global company.

We don't only distribute for example U.S.

products around the world, we create other products around the world for local markets that are, in turn, exported to other parts of our universe that we deal with.

So I think the short, succinct response to that is that we are relatively insulated from it.

It is not to say that there couldn't be a negative effect on one particular publishing program or another.

For example if the stock market were to go through an extended period of decline, in the past we have seen some evidence that that could have an effect on our investment publishing or our personal investing books.

If there was to be, for example -- this isn't really linked to the economy per se -- but if there was something that disrupted travel in the United States as we have unfortunately experienced in recent history, that could have an effect on it.

That is not directly the economy, but overall I think it is fair to say that relative to other companies and businesses we are pretty much insulated.

Two Blackwell-related questions.

First you talked about some programs, some items as part of the integration.

I guess what is the next big milestone part of the integration?

And give us a sense of timing around that.

Then the contribution margin for that business was about 20% in the quarter.

Obviously much lower than the U.S.

STM business.

Just want to know what is keeping that down and when we should see that begin to move up?

Yes.

I can answer some of that and Will can add to it as he sees appropriate.

Generally speaking, as Will noted in his comments, we've made all of those critical decisions around harmonizing financial and technology systems.

Those are the biggest components of integration from a shared services perspective let's call it.

Throughout the business there are extensive technology dependencies so bringing those two companies together is critically important along the lines of technology and systems.

Virtually all of the critical systems that support all of the Blackwell business, all the decisions have been made.

There are workteams and project managed teams and workstreams identified and people working against all of those parties.

So the next big I would say milestone there is to complete those integrations or substantially complete those which will occur somewhere within beginning let's say in the next six months till about maybe the next 14 to 18 months overall, including the online platform, which Will alluded to as well.

So that is the next big group of milestones.

That will allow us to achieve most of those cost savings that we've discussed in the past and then also address some of the questions that you had regarding the differences in margins.

Some of that will not go away.

It just will continue simply because the nature of the business of Blackwell Publishing is principally society-related.

Those have inherent, in those lower margins and own journals, they do have a significant portfolio of own journals but the weighting of society journals is much greater than in the USSTM business for example (multiple speakers) segment.

So whereas we can achieve cost savings in terms of integrating sort of -- kind of above the shared service level because those are identified obviously down below contribution to profit.

The principal cost savings are going to be down in shared services so you won't see significant movements in or improvements in Blackwell's margins arising from cost savings.

There will be some and they will be meaningful, but the bigger cost savings will be down in shared services.

So sort of a rather long answer to a relatively short question, but so the big (inaudible) comes again or completion of those systems integration projects and programs being able to release those folks who know already who they are, who are working through those integration projects and then essentially moving forward from there, growing the businesses we have.

And then one last question for you guys on cash flow.

We obviously have a sense as to where earnings should fall and you've given guidance for CapEx and the like.

With two quarters with Blackwell can you give us any sense as to how to think about working capital for that business and the Company as a whole?

The Company as a whole will principally move forward as we have in the past.

There is nothing significant outside of the Blackwell acquisition that would lead to any change in trend, with respect to growth in the business and the support of -- and the kind of working capital investments that are required to support business growth around receivables and inventory and so forth.

Still, largely, a negative working capital business because of this deferred subscription liability with the inclusion of Blackwell certainly that becomes even more so the case.

A little bit of an anomaly in the first quarter and the last quarter of last year is that the deferred subscription revenue that you see on the balance sheet in the increases there in the cash flow statement as well, people need to remember that when we acquired Blackwell, we acquired $188 million in cash as well.

Some of that cash is -- was the deferred -- excuse me the subscription collections that occurred before we actually closed on the acquisition which is a part of the revenue being recognized in fiscal '08 through the end of this calendar year.

So there is a little bit of not yet normalized activity with respect to that in our cash flow.

Kind of on a going-forward basis, you know you have seen in the first quarter and then the last -- in the 10-K that we filed -- that there will be increases in product development spending.

Something on the order of about 30% or so.

That's largely to support that increase related to Blackwell is the society royalty advances and also composition costs related to their book programs and advances to authors in those book programs.

So I think that sort of establishes a level.

I think we've indicated it is $105 million so expect that to be a reasonable baseline with growth from there.

In terms of capital spending I think there is a fair amount of -- while I don't think I know that's a fair amount of additional investment required to integrate systems and so that number that you see with respect to capital spending is not a good going forward metric.

We have to work our way through those integrations to know when we get to the other side of an integrated set of systems, what kind of maintenance and support is required on the going forward basis.

It is going to take us more time quite frankly to figure that piece of it out and give you a more definitive guidance.

I mean we certainly have a feel for it, but not just yet.

(OPERATOR INSTRUCTIONS) [Dave Lewis] with J.P.

Morgan.

Just a couple of questions.

One, I was curious if you guys could update the UPS guidance or just give us a little of an update there?

I mean I guess with the updated guidance or the continued same guidance -- we are at a guidance for the core business -- and then the 5% accretion for this quarter that the under $0.10 guidance for fiscal year 2008 seems a little -- or could be considered -- a little bit conservative at this point?

Yes.

In terms of the guidance certainly as Will noted and you've noted in terms of Wiley on a stand-alone basis we've affirmed our guidance which is low double-digit growth growth in earnings per share.

Nothing we have seen through the first quarter changes that, which is why we have reaffirmed it.

In terms of the effect of Blackwell as you note we said no more than $0.10 this year dilution related to Blackwell.

I could be a little bit of a smart aleck and say $0.05 accretion certainly fits within the context of that, but I do get your point about it potentially being conservative.

At the time that we issued that guidance that's our best guess.

I could say even today it still is our best guess.

There are some timing related to what in essence provided $0.05 of accretion in the first quarter versus what might happen over the balance of the year.

There is all kinds of things.

In terms of how interest rates move, we have swapped a significant portion of our debt to fix, but there's still a significant portion that floats a bit.

Interest rates have been lower over the first quarter and we had expected and planned.

So yes maybe some of that does carry forward, but the interest rate environment is subject to some volatility.

It could be up or down.

So I still would prefer to stay with that guidance and you may be right that it appears to be somewhat conservative and maybe it does feel that way.

But I don't have enough confidence yet in the amount of -- in the number of things that I don't have good insight to like interest rates and the like to have enough confidence to state with certainty that I should lower that level of dilution.

Okay.

Great.

And I would say no more than $0.10 it is -- I'm relatively certain of that.

Okay.

Can you guys also -- I know we went through this last quarter, but just update us on tax guidance?

We saw there is subsequent of events that I guess as potentially positive and negative small effects in the 10-Q out of Germany.

What should we be thinking there?

Is there any change?

I could begin by saying we will have a lot more information for ourselves and for you as well when we get to the conclusion of the second quarter.

As we note in the 10-Q where that taxable change happened very recently sort of post closing of the first quarter.

So the analysis that has to happen will engage around both the effect of the 9 percentage point decrease in the tax rate but more importantly the effect on [formerly] things that we could deduct, the degree to which those will affect what our amount of income subject to tax is.

So that is an analysis that we are presently working on.

The only sort of top line kind of headline I can give you on that is the effect will be positive.

This fiscal year, it is retroactive to the beginning of the fiscal year so there certainly will be a positive effect this year both in terms of book and cash taxes.

I just can't -- I don't know exactly what it is yet.

It's too many components of a simultaneous equation to come to a conclusion just yet.

With respect to the UK, the effect this year will be very small because again that only takes effect for one month of our fiscal year and that is the last month of the fiscal year.

So the effect will be small.

That all aside, if we exclude the effect of what happened, at least as an unusual item with respect to the tax change in the UK, if we sort of pull it out of the equation, the normal tax rate I would see this year would be somewhere around 26 to 28% on a book basis.

Blackwell being somewhere around 26% or so, and Wiley kind of on a stand-alone basis -- if I could use that -- would be about 37%.

So somewhere between 26 to 28, I think, is a good number.

Our cash tax rate because of the treatment of the intangibles from Blackwell are not tax deductible.

We acquired stock.

They're not assets.

So carryover basis is much smaller, much much smaller than the actual acquisition price.

So our cash tax rate will in fact be a little bit higher than that.

So I don't know if that helps.

Yes, it does.

Thanks.

Last question just with Wiley InterScience up 50% in the quarter.

I think it was up 24% last year.

Amidst -- a pretty solid number obviously in the midst of an integration.

Is there any driver behind that in particular?

Not particularly.

I mean it really is just the extent of the content.

The ability to get to Wiley InterScience is a location in the site.

So it really is -- it speaks to the ability to kind of get to, into science and, again, that represents a number of site visits.

The number of full-paged text used might be a different number.

In fact lower than that, but nonetheless a very positive statistic.

So we are encouraged by the level of activity and the degree to which InterScience is being accessed; and it continues to grow.

Sort of what?

Seven, eight years later.

That growth is impressive and very valuable.

(OPERATOR INSTRUCTIONS).

Allen Zwickler with First Manhattan.

Good morning, gents.

Happy 200th birthday.

You don't look a day over 100 -- either of you.

Going back to the high school, college textbook, we really haven't touched on this in a while in terms of calls that I can remember and could you maybe talk about price increases?

What the students are getting relative to workbooks, desks, etc.?

If you don't mind just kind of elaborating on some of those issues, relative to the past, and how that may be affecting bookstores in general.

Sure.

I would make a few comments about this, not in the context of a quarter, but over an extended period of time.

In fact, part of a presentation that I will be doing at the annual shareholders meeting, there is a particular visual that shows the evolution of our Higher Education business which is not easy to do on one slide, but we are attempting to.

And that is for much of Wiley's history in this business we were providing print on paper textbooks that would be adopted by a professor or sometimes a group of professors that for at least many generations students actually would buy and read those books to prepare for the course and the curriculum was very much tied to the content of the book.

In fact, Wiley has been known to publish many books over the course of decades that defined how the course was taught.

For example, Halliday & Resnick In Physics would be a good example and Intermediate Accounting, the key sold book, market leaders.

That was followed by a period of time when the textbook became certainly continued to be the center of the universe, if you will, in terms of how professors taught, but there were all sorts of so-called ancillaries.

Whether they were workbooks or solutions manuals and over time historically that had been also print on paper, but over time more electronic delivery of that material.

In the old days they could have been slides for a professor, then over time they became using more the technology increasingly online.

We have all sorts of websites now that support it.

There could be CDs that accompany a book.

We are living in that world right now where we went from primarily print to a combination of print and electronic where the so-called ancillaries now are becoming increasingly important and we have services like WileyPLUS, which you can buy all electronic or you can buy a combination of electronic and print.

So my point in mentioning all of that is that this business really has evolved significantly over time.

Through the course of all of that there has been a used book market.

There continues to be a used book market.

Through the course of all of that, we've had some issues to deal with with the pricing of print product for local markets.

For example the availability of U.S.

textbooks in Asia that are priced to market in Asia where there are prices that students could afford.

Increasingly we are finding some of that coming back into the U.S.

market and that creates a challenge for us.

But I think that the fair statement to make about all of this is this continues to be a business that is evolving and going through change just like Wiley's other businesses.

But I think the pace of change here is certainly picking up.

I think many of the underlying trends over the long term will turn out to be positive for companies like Wiley and that is, that I believe more and more of this content will be delivered online.

So I made reference to WileyPLUS a few times and the fact that well because of the increased penetration of WileyPLUS in the States and abroad, we are deferring more revenue.

We recognized that revenue over the course of the semester or semesters that the course is actually being taught.

So we don't book all that revenue as we used to with textbooks -- when it is actually shipped.

We are booking it over the -- so you are going to see some seasonality differences in our business.

The July and August will always be important, but they are going to be less important as more and more digital delivery happens.

It's probably not a bad thing.

So over time we see this movement to more online.

However I want to be clear in saying that we must understand that the feedback we receive -- and this is recent feedback, not three or four or five years ago -- is that students still very much want the content, the print on paper when they are reading a lot of text.

It's not to say that they are not buying more electronic products, they are.

But they still want the book.

They just want it at a lower price.

That's how you get a used book market.

That is how you get reimportation and that's why Wiley has invested over the last several years in lower cost print-on-paper editions of some of our textbooks or in new markets.

So this is a business where there is not one solution.

It's not just one textbook for one adoption, for one market.

It is a business where there has been much more customization, it's a business that is print and electronic that is moving more and more to electronic.

We see all sorts of opportunities with the electronic component of it outside the United States as well as in the States.

In terms of pricing, it's not easy from one year to another to say, "Well we put through price increases of X or Y." And the reason it is not easy to do that is this is highly dependent upon revision cycles.

I mean, for example if you have a book that has been out there for three years or so and you introduce the new edition, what are you comparing the price against?

When the book was in its first year, when it was first introduced three years ago or in the last year where it has been part of the used book market for a few years?

So there's not an easy percentage that I can throw out there that would be really meaningful.

I can say that companies like Wiley have been hypersensitive about the ongoing debate regarding the cost of higher education and instructional materials and issues of what I call price and value.

We believe that the solution to that, the solutions to that -- plural -- are a combination of more online delivery as well as some of these lower cost editions that we have been investing in the last several years.

Thank you.

Does that include for example, say, when you say online just for the guys who are still using protractors went -- instead of a student buying a textbook, a hard textbook they would get a disk at a bookstore or do you mean actually going online to download the material?

Just to understand the capital investment involved.

Well, the fact of the matter is it is all of the above.

There are students who will buy the book alone.

There are students who will buy the book and a disk bundle.

There are students who will buy online access.

The capital investment part of that should not be -- or let me say it from my point of view -- it's not a major concern to me relative to the print model and let me elaborate on that for a second.

Many of you will recall -- those of you who have been involved with Wiley or understand the Higher Education business know that companies like ours can invest in excess of $1 million to bring a major textbook package to market.

What I mean by that is we are making investments in product development and in inventory, sitting in the warehouse before it's shipped, before we realize $1 of revenue.

You could have a $1 million plus investment.

I'm talking now primarily about a print on paper world and we have been in that business for a long time.

In the taste of services like WileyPLUS whereas there are significant investments in the -- I will use the term generically -- the platform with the technology of WileyPLUS which we have created internally; and there are enhancements that you are constantly making to that.

What you don't have is the investment in inventory sitting in the warehouse or the returns and, frankly, you don't have -- which is related to this -- the effect of used books.

So my point in all this is when you look at the total investment, we are experiencing a world where, as you move more to online dissemination in Higher Education, and you look at the investment and the revenue and the earnings on that investment.

There is the potential for a cash return on investment that is at least as good as the print on paper world and perhaps better.

Even if the price points are lower.

That's a lot in a few sentences.

But the summary statement would be the economics of the online world in Higher Education are attractive and the issue for us is really pace of change through the eyes of the academic community, professors, deans, provosts and their willingness and students and their willingness to adopt, if you will, the technology.

If I could slip one more, unless well --

Okay.

Why not?

Just shifting gears to the journal business.

I'm intrigued by your statement about getting new titles or having some of these journals shift over to you.

Now obviously some who are doing it themselves, I guess, find your model as a joint company to be a good idea, but to what extent, though, are you seeing major shifts from other companies to you which you also mention?

You said it kind of in passing, but I -- you know with the profitability of that business I would love to hear a little bit more elaboration on it.

About how you are able to nudge some what could easily be 20-, 30-year relationships that are changing hands.

Yes.

I think -- again let me go back to one of the major points in terms of the strategic rationale for the acquisition of Blackwell.

One of those points is that Blackwell has an outstanding reputation among scientific, technical, medical societies as well as in the social sciences.

Their reputation is really terrific.

It's not to say that Wiley does not have or did not have a terrific reputation as well, we did.

But Blackwell was much more invested in and had built long relationships with societies over an extended period of time.

We felt that we could as a company, Wiley, value from not only the existing relationships but the expertise that they brought to establishing those relationships in the first place and sustaining them.

The point that I made in my opening remarks is we closed on this transaction early February.

First week of February and that's not really a very long period of time.

And we knew right out of the box -- what's the first thing you need to do, you do an acquisition like this -- you want to protect your existing relationships.

About the worst thing you can do is to start losing some of those.

Either Wiley's society relationships or authors who are saying, "Well, you just got a lot bigger, you are not going to take care of us." Or maybe Blackwell society or author relationships.

And our success rate there is really very high.

I'm not going to tell you there weren't any cases, there may have been some.

But when all is said and done we've done a terrific job, our colleagues around the world, in keeping those relationships intact.

The really powerful news to your point is since February we have also had opportunities and this happens every month, every quarter.

There are constantly opportunities out there to establish new relationships with societies, which means taking them from competitors or convincing societies that self-publish that we could do a better job for them than they can do on their own.

Another part of the strategic rationale for this combination is that these two companies together could establish best practices in the field of society relationships and publishing in this particular area; and I believe we are well on our way to doing it.

So you're down to competing against other companies and how do you do that?

For as long as I have ever been in this business it all starts with the quality of relationships.

Editors, publishing, people, marketing sales, increasingly our technology capabilities, sales marketing distribution -- those are the kinds of things the execution that Wiley has always done well, that Blackwell has done well and now we are doing together.

And we are not even completely merged and integrated yet.

So we are getting some -- when I say the early indicators, the leading indicators are positive is I repeat we have been working together since February and we've already signed on some new ones.

More than just some.

I mean some significant ones and my belief is when we are fully together in terms of the merger and the integration and we are all on one platform, we are really going to have a very compelling story with competitive advantage.

So you are just beginning to see the acquisition plan playing out.

It's early days.

But that's what -- this is exactly what we said was going to happen and is happening.

I appreciate that.

Thank you and welcome to the [third century].

Thank you.

Paul Hogan with [Finnemore] Asset Management.

Just a couple of questions.

First of all, looking at Blackwell, what type of seasonality should we expect in that business?

Is that similar to your STM business?

Yes.

It very much is.

Yes.

From a reported basis and a cash-flow cycle basis as well.

So fiscal fourth quarter will be the largest quarter then?

Not really.

I mean it's pretty -- the STM journal business as you would imagine is relatively stable over the course of four quarters because of how we recognize deferred revenue.

From a cash perspective, the fourth calendar quarter is the biggest quarter and then a bit into the first calendar quarter of the year from a cash perspective because of the collections on journal subscriptions.

Could you talk a little bit about what your playbook is, for paying down some of that debt?

Do you think we'll see that going up in the second quarter before it goes down?

You will.

Our peak in terms of borrowing is the first two calendar quarters -- sorry -- first two fiscal quarters of the year as we essentially support all of our operating programs and before we begin to get the very seasonal large contributions of cash that I just mentioned from the journals business.

So it would peak somewhere right around the end of the second calendar quarter.

Not hugely different though, than the first calendar -- I keep saying calendar, sorry, fiscal quarter.

Clearly the third fiscal quarter is when the cash really begins to come in a significant way.

November is a very big month.

December a bigger month and January about the same size, very large month and then sort of tailing off.

So you would imagine the January quarter would be where you would see debt come down very significantly then even a bit more at the end of the fiscal year.

So is your mindset that that will also carry through on to next year?

Yes.

So if you kind of look at a two lines on a graph in terms of debt, you'll see cyclicalities of quarters within the year; and then you should see year-on-year trends coming down certainly.

So we expect to reduce debt significantly over the next couple, three years particularly once we get past some of these integration costs related to what we talked about earlier in the call and towards the end of the fiscal year.

Next year will be a significant paydown in debt.

This year some.

When you look at year on year, sort of year-end, but next year even significantly more substantial debt paydown.

Drew Crum with Stifel Nicolaus.

Just real quickly.

Will, you touched on this briefly but I know we've spent a lot of time talking about you integrating the Blackwell asset.

Can you talk about what you are seeing from your competitors in response to this transaction?

Then moving over to the Higher Ed side, there's been a lot of ownership changes within the industry.

If you could just talk about the climate there or what you are seeing on the competitive front?

Thanks.

About the only thing that I can say about our competitors in the STM business is that the competition, as I was speaking about earlier, for these society relationships has been and will continue to be fierce.

These companies including Wiley fight very hard for those relationships for good reason.

And I see no reason to anticipate that that will not continue, that there will be some fierce competitive battles for new society relationships.

And then once you have them, retaining them.

Again I'll go back to the strategic rationale for the acquisition.

Blackwell alone and Wiley alone did quite well in this area.

Blackwell was certainly a longer and strong reputation in this particular area.

Together I am very optimistic about what we can deliver and when I say that it's not only, "Okay we have the contract, we will sign the publishing agreement."

It's the comprehensive services that we believe we will be able to provide over time to these societies that goes beyond just publishing the flagship journal.

You have to do that exceptionally well, but we believe there are opportunities to get more deeply embedded if you will and I'll use a term that we have been using quite a bit around here lately, in the workflows of these societies to bring added value to them.

We think Blackwell and Wiley combined will be positioned very well to do that.

What does that do?

It opens up opportunities to create more intellectual property, to create services that help facilitate research and it deepens the relationship.

We feel that is all robust in terms of the future in that particular area.

So more intense competition for sure for societies and we feel very well- , society relationships very well-positioned.

In addition I think the other thing that will be an ongoing thing in STM is the investment enabling -- I always used that word with technology -- enabling technology.

Blackwell has [Cenergy].

Their online platform, we have Wiley InterScience.

You should anticipate that companies will continue to find ways to enhance those services, again, to facilitate the research and we are going to do this certainly another part of the strategic rationale.

We believe that the two companies together with our combined contents and expertise will be able to deliver at a very high level in terms of enabling technology.

Flipping to Higher Education and changes in ownership and all of that, you know every time and -- goodness knows -- some of us have said it over the last decade.

You know you'll say, "Well during the last decade this has been a period of rapid consolidation in our industry and we are just talking about publishing." Then you kind of think things are going to settle down for a while and there's another round of consolidation and that certainly is what has happened in Higher Ed.

Most notably the sale by Thompson of their Thompson Learning Business now currently owned by Apax Partners and others and the more recent situation involving Houghton-Mifflin, and specifically owned by Riverdeep, it is specifically their Higher Education business.

I think what -- there are a couple of messages around that.

I think one of them is that the fact that people are interested in bidding on these properties indicates to me that they do see long-term strategic value and I certainly want to reiterate that view, from a Wiley respective is that I -- there is no scenario.

And we are people who are actively engaged in what we call scenario planning.

There is no scenario in the future that we can come up with that Higher Education will not be valued in the United States and abroad.

And there's no scenario in the future that we could come up with, that professors and students would not need some kind of assistance in teaching and learning in the form of instructional materials.

In fact we see quite a bit of a convergence that I was alluding to earlier meaning that we don't see this as one size fits all in a sense, but we see the convergence of threats in an online kind of complementing each other to satisfy the needs of professors and students and we see that not only in the United States, but around the world.

I think the people who are investing in these businesses say that as well.

For those who have decided to divest them, I of course not privy to the rationale for that, but as an industry participant and observer over an extended period of time, I really think this all has to do with whether you are willing to make a long-term commitment to a business you have conviction about or not; and I think in the case of the companies that have divested these businesses, they were not willing to make the long-term commitment to the business because you know what gets published is there wasn't a strategic fit or it didn't tie into a particular objective that they were hoping to achieve, things of that nature.

I do not believe, frankly, it has anything to do with the business itself or the prospects for the business.

I think it has mainly to do with the Company's belief that owns it and has decided to divest it to be financially and intellectually committed to it to make it successful over the long term, relative to other opportunities may have.

In our case, we have been in this business a long time.

We have gone through all sorts of cycles.

You know, for those of you who have heard me speak or have interacted with me about the business over an extended period of time, you know that I see many connections among Wiley's three core businesses of Higher Education, STM and Professional Trade.

Those connections are reflected in the content we produce, the audiences we serve, the self marketing and distribution increasingly, and the technology investments.

You know we could imagine, for example, a future in which Higher Education could consider some institutions, institutional licensing.

Well guess what?

We have that capability with our STM business.

So we believe we could transfer some of that capability from our STM business to Higher Ed and give us competitive advantage.

So we see those kinds of connections.

I also see -- lastly, I will make the point -- these ownership changes can be disruptive to author, publisher, customer relationships.

And that certainly represents an opportunity for companies who have had the kind of stability and consistency that we have had here to take advantage of

Rajesh (inaudible) with (inaudible) investments.

This is more of the housekeeping question.

I was just wondering once the Blackwell acquisition gets fully integrated, the size of your European operations are going to be quite significant later to the whole Company.

And I was just wondering if you guys have given any thought to providing detailed segment information within the European segment, when you report your quotes?

Yes.

I guess what we will do when Blackwell is fully integrated, and essentially the leadership and management is structured around that, it will be integrated from a segment perspective as well.

Not so much into Europe alone.

I mean, physically, the presence of and headquarters for Blackwell formally were in Oxford.

Oxford is certainly a significant part of the operations as is our other European operations, but it will be integrated on a global basis.

So in fact we will more likely than not report on a global basis with respect to the combination of Blackwell plus our USSTM business plus the STM components of our European operations and operations in Asia.

So, a bit hard to discuss just yet or understand just yet what we might do in terms of additional breakdowns within Europe.

I think that would happen in the MD&A discussion than in the [fiscal] presentation of numbers from a segment perspective.

Because I think it lends itself more to a global integration than into a European integration.

At this time we have no further questions.

I will now turn the conference back over to Mr.

William Pesce.

Thank you very much for your continued interest and support and we look forward to speaking with you again at the end of the second quarter.

Thank you.

That concludes today's teleconference.

We appreciate your participation.

Everyone, have a great day.