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Operator
Welcome to the John Wiley & Sons conference call.
Today's conference is being recorded.
Before introducing 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.
- CEO, President
Good morning, and welcome to Wiley's third quarter conference call.
I'm with Ellis Cousens.
I'll provide an overview and then we'll respond to your comments and questions.
Before I move into my formal remarks, I want to acknowledge that we may have caused some confusion with schedules that were attached to the earnings release that was issued earlier today.
I should point out that those of you who received the earnings release directly from Wiley via e-mail, all of those schedules are correct.
For those who have received them either on a website or through business wire, there are three schedules, schedule one under summary of operations, nine months is fine.
Schedule two, summary of operations third quarter, it actually has nine-month data in it, not the quarter.
And then schedule three for the segment results, a similar problem.
So we have reissued that information and there's nothing specifically wrong with any of the reported numbers other than in those schedules that I noted nine-month data ended up in the third quarter information.
And whereas we feel good about our third quarter, I think you would agree that having nine-month data in the third quarter is not an accurate representation of our actual performance.
So all of the narrative in the earnings release is correct, so the problem was just what I outlined.
So moving into some of the specifics.
Third quarter revenue of 429 million, increased 45% over prior year.
Excluding Blackwell, revenue increased 6% or 3% excluding favorable foreign exchange.
EPS of $0.67 exceeded prior year by 18%.
Excluding certain tax benefits and Blackwell, adjusted EPS increased 7% in the quarter.
Year-to-date revenue of 1.2 billion increased 47% over prior year.
Excluding Blackwell, year to date revenue increased 6% or 4% excluding favorable foreign exchange.
EPS for the nine months of $2 exceeded prior year by 36%, excluding certain one-time tax benefits and Blackwell, adjusted EPS increased 9% for the nine months.
The Blackwell acquisition contributed revenue of $115 million in the quarter and $347 million in the year-to-date period.
The acquisition was accretive to EPS by $0.09 per share in the quarter and $0.18 per share in the year-to-date period excluding certain tax benefits.
Wiley's of topline growth continues to be driven primarily by Blackwell.
Professional trade revenue increased modestly in the quarter, but year-to-date results remain well ahead of prior year and industry performance.
U.S.
scientific technical and medical revenue increased slightly quarter while global revenue advanced 5%.
Higher education showed signs of a recovery in the quarter, bringing year-to-date revenue essentially on par with prior year.
As expected, gross margin as a percent of revenue of 67.5% was below prior year for the nine months, reflecting product mix including the Blackwell society journals.
Operating expenses for the nine months were 44% higher than prior year, primarily due to the Blackwell acquisition.
Excluding Blackwell and the unfavorable effect of foreign exchange, operating expenses increased by only 3% over prior year.
Free cash flow was $37 million better than prior year, reflecting increased cash earnings, lower income tax payments and the timing of royalty payments related to Blackwell partially offset by increased receivables resulting from sales growth, product development spending, and capital expenditures for computer hardware and software.
Based on year-to-date results, leading indicators and market conditions, we anticipate full year revenue growth in the mid-single digits and EPS growth in the low double digits excluding Blackwell and one-time tax benefits.
We are currently projecting that Blackwell's revenue will be approximately $470 million and that the acquisition will be accretive to EPS by at least $0.20 per share which represents improvement from our previous guidance.
I would like to provide some highlights regarding the performance of Wiley's core business.
Professional trade revenue for the quarter advanced 2% over the prior year to 103 million.
For the nine months, revenue increased 5% to 302 million.
Global revenue increased 7% for the nine months.
Direct contribution to profit for the quarter and nine months increased 8% and 14% respectively.
In addition to topline growth, the profit improvement was due to a bad debt provision recorded in the third quarter of last year and a partial recovery in the second quarter of this year.
Excluding these items, direct contribution to profit declined in the quarter, reflecting lower gross margins due to product mix and the timing of advertising costs while year-to-date results were consistent with top line growth.
After a somewhat disappointing December, January was a record month for P/T.
The business and consumer programs were primarily responsible for the third quarter topline growth partially offset by softness in technology and by sales returns.
U.S.
sales channels had a very good quarter, particularly online; national accounts, training, and government.
Year-to-date growth was driven by strong sales in business, consumer and technology, partially offset by sales returns.
Licensing of rights worldwide and branded website content continue to have a positive effect on results.
The Financial Times selected five Wiley titles for their list holiday picks.
Several Wiley cookbooks were recognized as best of the year books.
Arthur Frommer's blog was listed as one of the top ten websites for travelers in 2008 by "The New York Post".
Scientific technical medical revenue for the quarter and nine months increased 2% to $58 million and $169 million respectively.
Global STM revenue advanced 5% in the quarter and the nine-month period.
Direct contribution to profit rose 3% for the quarter and was essentially flat for the nine months.
Top line growth for the nine months was offset by increased content development costs associated with new journal titles.
During the quarter, modest journal topline growth was largely offset by softness in book sales, revenue from advertising, and commercial reprints was below expectations.
Pay per view revenue for journals and online book sales are well ahead of prior year.
During the quarter, STM signed an agreement to launch archives of drug information which will provide a repository for clinical trials and similar projects that yield negative or inconclusive results.
Archives with drug information will be an online only journal with an author-pays fees.
STM renewed it's agreement with the American Association for the Study of Liver Diseases to publish two journals, Hepatology and Liver Transplantation.
Hepatology has he second highest impact factor of any journal published by Wiley-Blackwell.
Blackwell revenue and operating income for the third quarter was $115 million and $16 million respectively.
Operating income included $5 million of amortization charges for intangible assets related to the acquisition, interest costs associated with the financing of the acquisition were approximately $17 million.
Blackwell's results were accretive to Wiley's third quarter EPS by $0.09 a share.
Blackwell revenue and operating income for the nine months was $347 million and $45 million respectively.
Operating income included $17 million of amortization charges for intangible assets related to the acquisition.
Interest costs associated with the financing of the acquisition were approximately $50 million.
Blackwell's results were accretive to Wiley's year-to-date EPS by $0.18 per share, excluding one-time tax benefits.
Blackwell continues to extend existing and form new society relationships, a new magazine, Health for Women, was signed with the Association of Women's Health, Obstetric and Neonatal Nurses, which is already one of our publishing partners.
This controlled circulation publication extends the company's presence in the U.S.
nursing community.
Higher education revenue increased 3% over last year's third quarter of $50 million, bringing year to date revenue of $136 million within 1% of prior year.
Direct contribution to profit of the quarter increased 5% over prior year but declined 8% for the nine-month period principally due to lower planned margins from Microsoft Official Academic Course titles and higher deferred revenue from WileyPLUS.
Reported revenue continues to be affected by the growth of WileyPLUS, since revenue is deferred and recognized over the course of one are two semesters.
The year-to-date deferral was approximately $2.5 million higher than prior year.
WileyPLUS continued to gain momentum as reflected in the significant year on year increase in billings and usage.
Outside the states, WileyPLUS usage is increasing significantly Asia, particularly Malaysia.
We recently penetrated the market in south South Africa with adoptions in physics and geography.
In the quarter, improvement in the accounting and engineering programs, as well as the sale of content licenses, were partially offset by soft sales and social sciences and mathematics.
For the nine-month period, sales of Microsoft titles, the accounting program and licenses were offset by softness in mathematics and social sentences.
Book stores continue to purchase new textbooks below the number of enrolled students.
Wiley is taking advantage of its collaborative business relationship with online retailers to benefit from the significant growth in sales through online channels.
We are also taking advantage of the new industry online platform, CourseSmart, to distribute complementary copies to professors electronically.
An increase in reimportation and piracy is evident.
We have expanded our adaptation and versioning programs and continue to monitor suspicious buying behavior.
Wiley Europe's revenue increase $8% to $81 million and $246 million respectively, 3% excluding favorable foreign exchange.
Direct contribution to profits to the quarter and nine months increased 5% to $26 million and $83 million respectively, or 4% excluding foreign exchange.
Topline growth remains sluggish for our UK company.
Moderate growth in journal revenue and strong sales of indigenous professional trade books were partially offset by lower controlled circulation advertising revenue.
Softness in the pharmaceutical industry is having a negative effect upon advertising and reprint income.
Lastly, book publication schedules, particularly in STM, are more skewed to the fourth quarter than in the past.
In Germany, Wiley BCH had a solid quarter mainly driven by journals.
For the nine months, topline growth reflects the positive effect of journals and professional trade books partially offset by sluggish STM book sales.
The German Language for Dummies program enjoyed a strong quarter driven by robust sales through Amazon.
In Europe, we renewed our contracts for the Cochrane Library and the Journal of Pathology.
The Journal of Pathology agreement was renewed early, extending the term for 10 more years.
We have published this journal for 23 years, establishing it as the number one journal in its field.
Online usage of products and services continues to grow in Europe.
On calendar year 2007, (inaudible) recorded nearly 4 million full text downloads accounting for approximately 10% of all use an on Wiley interscience.
Third quarter revenue in Asia, Australia and Canada advanced 13% to $49 million, but only 3% excluding favorable foreign exchange.
For the nine months, revenue advanced 16% to $120 million or 8% excluding favorable foreign exchange.
Strength in professional trade in STM and Asia, and indigenous higher education publishing in Canada were moderated by sluggish sales and Australia's school business and Canada's professional trade business.
Excluding favorable foreign exchange, direct contribution to profit declined in the quarter, principally due to investments in indigenous publishing programs in Asia and Australia and the timing of promotional cost in Canada.
Wiley Asia reported third quarter growth.
Higher education performed particularly well in India, professional trade was strong in most regions reflecting the effect of the buoyant retail market, new store openings, and strong sell through.
The STM markets in Japan, Taiwan, and Korea improved after a slow start to the year while India and Southeast Asia continue to perform well.
Third quarter results in Australia reflect lower than expected performance from the school front list and the timing of reprint revenue.
STM books benefited from effective marketing campaigns to promote new titles.
Higher education continued its strong performance driven by the indigenous publishing program and WileyPLUS.
Revenue growth in Canada was driven by indigenous higher education publications and STM books.
WileyPLUS revenue continues to grow.
Sales of professional trade products were down due to pricing pressure caused by the strength of the Canadian dollar.
In summary, professional trade is having a solid year.
We anticipate a good finish for STM globally, in part due to a strong book publication schedule in the fourth quarter.
Higher education should continue to benefit from the momentum of WileyPLUS.
Blackwell is performing well.
We have accomplished a great deal during the past year.
Important milestones will be reached within the next four to six months, including the migration of Blackwell contents to Wiley Interscience.
I'm very pleased with and appreciative of the professionalism, commitment, and dedication of Wiley and Blackwell colleagues around the world.
They are successfully confronting the challenges of the transition and building a strong foundation that will enable us to realize a promising future.
With that background information, I well come your comments and questions.
Operator
Thank you, Mr.
Pesce.
(OPERATOR INSTRUCTIONS) We'll take our first question from Drew Crum from Stifel Nicolaus.
- Analyst
Good morning everyone.
I want to start with the Blackwell acquisition.
Can you talk about what -- where the source of upside was in the quarter relative to your guidance heading into the quarter?
- CFO
Yes, Drew.
This is Ellis.
As we have experienced probably, in probably two at least three quarters thus far, a couple of things are benefiting us.
One is some of the tax benefits related to the acquisition itself.
We talked earlier in the year a number of times about the tax planning strategy, so some of that is coming from tax, some of it is also coming from lower interest rates.
As you know, we've hedged a significant portion of the debt to try and reduce risk related to potential upward volatility in rates.
It's turned out the other way certainly, but we still have a piece of debt that's floating, so we benefited from a decline in interest rates to some degree.
It's principally those two things that are sort of thinking their way through.
A little bit on the operating side as well.
a little bit of timing related to some of the integration costs that will be pushed a little bit further out, and whereas the integration has gone well, we're sort of keeping up with what we've planned to do in terms of accomplishing in the integration.
Some of the spending is going to happen a little bit later.
It's not a lot, but principally it's those three things, focusing mostly on the first two.
- Analyst
So can we consume that none of the costs of revenue synergies you guys have discussed benefited this quarter?
- CFO
No, certainly there's -- the revenue synergies will come principally later on, at least until after the platforms are combined.
We need a combined offering of essentially content customer as Will described in his remarks are that will come around the middle of calendar year coming, and even more so in the beginning of the following calendar year, meaning January 2009.
It's from that point forward that we'll see more of the -- of the synergies.
We have seen a little bit coming out of some of the back file work that we've done with respect to Blackwell, but there's not a lot of that through the first nine months.
- Analyst
Yes.
Okay.
- CEO, President
Drew, I would add one other aspect to this.
This is Will.
On the Blackwell book program, of course their journal program is by far the largest source of revenue.
However, they do have a terrific book program, and we believe that by bringing the two companies together that our colleagues at Blackwell would benefit from Wiley's global sales and marketing network, and we are already beginning to experience some of the uptick on the book side of things as a result of bringing the two companies together, particularly in Asia.
So where as it's not a material part of out results so far this fiscal year, as a positive leading indicator is that we're already beginning to get the benefit of that, and we look forward to that happening in the future.
The other thing that I've highlighted in previous calls that would like to emphasize again here, because as I said earlier, I'm really very appreciative of all that our colleagues are doing here.
When you're going through a transition of this magnitude, which basically touches just about every part, every location that Wiley had, and that Blackwell has.
If you look comprehensively across all of our businesses, there's a significant effect, and you could imagine from time to time that the potential exists for some kind of disruption in the day-in and day-out things that you're doing maintain your business.
I think our colleagues have done a great job in strengthening, maintaining and strengthening relationships with our society partners.
And each quarter I highlight some of the agreements that are either new or where we have extended some of those agreements, and whereas you will not find, again, the P & L benefit of that in this fiscal year.
It's critically important that we continue to do that.
It's a significant accomplishment that we have done that in the current fiscal year for the benefit of future fiscal years.
- Analyst
Will, can you address the renewal rates, maybe quantify the renewal rates on the Blackwell side of the business post acquisition?
- CEO, President
Actually, when -- if you're talking about usually when people talk about renewal rates they talk about for customers.
I can tell you the renewal rate on our society partnerships is outstanding.
I'm aware of one, maybe two that we lost, and the revenue consequences of that frankly relative to the nearly 60 or so that we have been able to either renew or extend, is all very positive.
In terms of renewal for the calendar year, what I can tell you so far is that everything looks fine there.
They look like healthy renewal rates.
I don't have a specific number I can quote, but that process seems to be going according to expectations.
- Analyst
Okay.
Want to shift gears to the STM business.
You may have answered this in your prepared remarks, but the U.S.
business is growing at a low single digit clip year-to-date.
I know coming off the second quarter you mentioned that the publication schedule is back end loaded this fiscal year.
Are we going to see all of that in the fourth quarter or is there something else going on that may be mitigating the growth here?
- CEO, President
I think there are a few items.
Talking specifically about U.S.
STM revenue as opposed to global STM revenue, because I do think you have some regional differences here, but when we report our numbers in the earnings release, we break out the U.S.
part of it, and I think there are a few things.
One is, I've used the word sluggish topline growth relative to what I consider to be very strong prior year results, and just to remind everyone, last year, our U.S.
STM revenue was up 9% in the third quarter and for the nine months.
It was a particularly strong year.
So the basis of comparison there is having some effect on this, although that's not the entire reason.
For the nine months, if you go through January, our U.S.
STM book revenue was essentially flat with prior year, and that is partly due to publication schedules, not entirely due to it but partly due to it, and we are anticipating an uptick on the book side of things because of the number of books that are publishing in the fourth quarter.
And when I say that, that's not only in the United States.
We also have -- there's a strong fourth quarter publication schedule for STM books in Europe.
So we are anticipating that we'll get some of that back then.
I would also say that another contributing factor, in terms of year on year comparisons, is that our revenue from commercial reprints and the advertising market is certainly below our expectations and is constraining the year on year growth a bit.
To pick out one example of that, that reflects some of the market conditions in the pharmaceutical industry.
Now, commercial reprints in advertising is not a huge part of our business relative to other revenue sources, but on the other hand, we have gotten some pretty solid growth out of those areas in prior years and that has slow down a bit.
And certainly is affecting fiscal year '08 relative to fiscal year '07.
Another component is that we have talked to you in the past about our digitized back file collection, and whereas that is certainly tracking to our expectations, it's down from the high point, and that's the, reflecting our success.
What I mean by that is we have already achieved significant penetration there in prior years.
Now, the good news about the Blackwell acquisition is that there are significant opportunities for a back file revenue growth with the Blackwell program.
Ellis commented that we're beginning to get some of the benefit of that.
That should continue into fiscal year 2009 and beyond.
And then I would just repeat that if you look at, which is not in our year-to-date results per se, but if you look at the customer renewals as opposed to the renewals on society's making that distinction, so far that information looks fine to us.
We're very consistent with our expectations.
So I think it's all of these things combined that has caused a more moderate performance in our U.S.
STM business.
Some of the regional factors come into play when you see a global number higher than the U.S.
number, and one of the great things about this business, there are many great aspects to it.
One is that it is truly a global business and from time to time you will get some regional differences, and the global numbers are specifically the numbers outside the states currently are at a higher rate of growth than in the United States.
That's not a huge surprise to us.
But I think the gap is a little bit higher or bigger than we had expected going into the year.
And where we're getting some real nice results is if you look at the growth in Asia in particular, the results have been very positive, and that's, again, the benefit of having a global enterprise like this is when one particular market may be off a little bit more than the other, you to can get some benefits there.
So it's all of those factors coming together.
- Analyst
Very good.
Let me sneak one more in.
Is there any update on CapEx guidance or additions to product development assets?
- CFO
Well, you'll see that in the Q that will be filed at the end of the day.
Product development, no, the capital spending you'll see an adjustment downward there.
- Analyst
Okay.
Thanks, guys.
- CEO, President
You are welcome.
Operator
Thank you so much.
(OPERATOR INSTRUCTIONS) And we'll take our next question from Dave Lewis from J.P.
Morgan.
- Analyst
Hi, guys.
I was wondering if you guys could touch on the economic environment?
I know we addressed this before and you guys have a resilient model, but things have gotten meaningfully worse since three months ago and specifically, I'll touch on two things.
One, obviously states are pinched right note for funding, or some states are, and I know that supports libraries which in turn funds some of this STM spending.
The second related area, the smaller higher ed segment, there's talk that with the freeze in the credit markets and that continues to get worse, although we saw signs of potentially some relief today, there could be issues with students acquiring loans to go back to school, private loans, and know that's a much smaller piece of the market, but I was wondering if you could touch on those two things in light of the economic environment?
- CEO, President
Sure, Dave, this is Will.
If you don't mind, what I would like to do is respond to your question about talking about actually all three of our businesses.
You didn't mention P/T.
Let me just round it out and speak to all three businesses and try to highlight the factors here.
We have always believed and we continue to believe that relative to other businesses and industries, Wiley has a collection of businesses that are somewhat resistant, not totally resistant, to downturns in the economy.
And that has been -- we have a well documented history of that and I don't have any reason to believe that the current economic conditions will have a material affect on our business.
That does not mean it will not have any effect on our business.
And some of the things that we look at, and what I would like to call to your attention, is to the extent that governments have lower tax receipts, which is obviously a characteristic of a down cycle.
Lower tax receipts usually translates to less support for libraries, in many cases public higher education, areas like that, and to the extent that library budgets get even tighter that over time, it has not had an effect on us so far, but depending on how long we are operating in those conditions, we could start seeing an effect actually initially on our book programs because I think what happens, historically what happens there is that libraries will tend to maintain their access to our pier review journals, and they may delay some purchases of book programs.
We don't have evidence of that as we speak, but that's certainly a possibility down the road.
And when you get out of the library market, and look at our advertising business, whether that has to do with advertising in our journals or controlled circulation, publishing, or some of the reprints that I mentioned, particularly when you think about companies like the pharmaceutical industry, and the revenue streams that we've developed over time there.
That's the business that would be affected the soonest and probably in percentage terms to the greatest level.
Again, I don't want to over emphasize this, but I just want to say that in the STMS business, those are the two considerations.
Research library budgets would hit books first more than journals.
However, no effect yet in that area would have to take, I think, a protracted slowdown.
Shorter term could be on the advertising control circulation and commercial reprint business.
We have experienced some of that in that I mentioned in my remarks.
Whether that's tied specifically to the economy or what had hat been going on in the pharmaceutical industry for a while, we could all speculate.
But not material certainly from the point of view of STMS.
And higher education, it's a little bit more complicated because history would tell you that in down markets many people go back to school or stay in school, and certainly there's lots and lots of history around that.
And doing a quick sampling of what's been going on with applications, and I'm not talking about the for-profit schools that have been getting quite a bit of publicity around student loans.
If you look at two and four year universities, public and private, there do not appear to be any indications whatsoever that acceptances are, at least at this point, being negatively affected.
In fact, in some places, what's happening is that the number of applications are increasing pretty dramatically.
So historically, recessions have caused people to go back for more teaching and learning and to get out of the market, the job market, for a while.
There's no reason to assume that that won't happen this time.
Having said that, of course, and particularly in public higher education, if there are less -- if there are less dollars around to support student loans and all of that, students may look for ways to cut their costs.
Could that possibly result in them sharing books even more than ever?
it is certainly possible.
The offset to that is, I think, the more people look at products and services like WileyPLUS, which is all about improving the productivity of teaching and learning, I think it could actually help boost the acceptance of technology like that as universities try to deliver more instruction for less.
If they go to more adjunct professors as opposed to full-time professors.
Those adjuncts need teaching and learning resources.
Well, that's what we do for a living.
So there's pluses and minuses in that market.
I know there's quite a bit of publicity around the student loan situation, particularly with the for-profit or career colleges, and we do business with those institutions.
My feeling is with some of the larger accounts that we deal with, I am not anticipating for our business a material effect there.
So I would say in higher ed, mainly neutral, maybe even some people can make a case there may be a little bit of a pick up if, again, enrollments and acceptances kind of play out the way they have in the past.
In our professional and trade business, once again pretty resilient to changes in the economy.
There may be particular areas that could get affected in some of the consumer categories.
If book store traffic were to decline significantly, we can go back and forth there because in many cases if it's a tough economy and people are staying home, they're kind of buying books to either improve their skills or to entertain themselves.
So I think when all is said and done, Wiley has been and will continue to be mainly resistant to changes in the cycle.
However, in the cases of advertising and particularly if it's protracted recession, you may find in and of these library budgets it gets tighter than it has been for us, and you can see some effect on our book publishing in STM.
- Analyst
Okay.
That's great, thanks.
Will, could you also touch on -- I've heard you speak about the scenarios or how Wiley is positioned as content moves online and higher ed, as well as STM.
Could you talk about how you see the P/T business evolving as content moves online?
We touched on it a little bit with Kendall last time, and your response was it's early days, but also in light of, I believe, Barnes or -- I know that you guys have had great success, this is a little bit on the same topic but a little bit off subject -- you guys have had great success through Amazon.
Related to that, I believe Barnes or Borders increased their online program recently.
- CEO, President
Yes.
Thank you for that question.
Frankly, we go through, our fiscal year ends in April, and we have an ongoing strategic plan process and this particular week four March meeting we present an update to our board of directors and, of course, that's preceded by lots of dialogue around their world in term of strategic plans and operating budgets.
I want to be very clear.
I think our professional and trade colleagues have done a wonderful job adapting to changes in the marketplace enabled by technology.
Some people can say, if you're stepping back and looking at, it all of of those guys in STMS or higher ed were ahead of professional and trade, and that's not because of people inside our organization, it's because of the way the market was developing and evolving.
I've always said STMS, it was a natural outgrowth of trying to improve the productivity of research, and the discoverability, if you will, of content, making more access to more content than were before in our history, and it was just a very natural evolution there.
In higher ed, there are so many benefits to professors and students in terms of making -- having the technology enable teaching and learning.
Now, the adoption of technology and higher ed has been slower than the research community, but you can see that that's beginning to build.
In professional trade, I think what happened is many people were focused perhaps too much on e-book technology and these reading devices and saying well, the expectations were really high and it just seems that time and again people were disappointed it wasn't being accepted as much.
Well, the fact of the matter is, there is a market there.
It's -- now I'm talking about specifically having people gain access to our content on these e-book readers.
There's a market there.
We're prepared to benefit from that.
Where professional trade at Wiley is really making a difference is building on these recognized brands, like the Frommer's brand, which the number one travel guide publisher in North America, and we're begin to introduce that brand more successfully outside of North America.
In addition that, we have a branded Frommer's website.
I mentioned Arthur Frommer's blog as one example of how we're taking what was historically a print on paper business, building on that brand to provide more services and value to our readers through a branded website that has all sorts of additional services there.
There's the blog, as one particular example, but there are on-line forums, there are maps, there's all sort offers very interesting opportunities for users to interact if you will with us and others to build a community around the Frommer's brand.
What we are finding is we are opening up revenue streams there through sponsorship and advertising; that's obviously a good thing, but in addition it's re-enforcing the power of the Frommer's brand and many of the people who are going on site where they can gain some access to content, but they need to obviously go to the book to get the complete content.
They're going to the site initially and then going and buying the book.
That's one specific example of how our professional trade.
And I can say the same thing about the this the For Dummies brand for example.
You mentioned Amazon.
We have worked successfully with Amazon from the early days when that business was about selling more books.
It's still about selling more books today, but with Kendal and other opportunities, we're looking at selling books, chapters in books, all sorts of very interesting growth opportunities in that business, and it has really begun to emerge I would say within the last 12 to 24 months, so I believe that business will still, for the foreseeable future, be primarily a print on paper business not because Wiley wants that to happen or not, it's because that's what our customers want.
That they still value print on paper when they're reading lots of text.
However, one of the fastest growing areas for professional trade business is to complement print on paper book sales with these branded websites, opening up revenue streams, getting more interaction between us and our customer, which comes back into additional products, but also obviously revenue growth.
So I am -- I hope you hear it in my voice.
I'm genuinely excited by what our colleagues and P/T are doing.
- Analyst
That's great.
Just a couple of more.
I heard -- I think there was a recent book store conference in the past few weeks and the chatter there was that the books stores are scared and I guess there's a couple of nuggets involved with that that I believe a lot of professors, a high percentage of college professors which have been a constraint in terms of adoption because they have to sign on their students are retiring in the next five years.
It seems like obviously WileyPLUS is doing very well.
Have we reached an inflection point with higher education and online adoption at this point?
I wanted to hear your thoughts there.
- CEO, President
Well, I don't think -- I don't think wire quite is there's been massive adoption of technology in the classroom.
And those of you who are engaged with us over the years have often heard me say that where people have missed these things in the past they've gotten so wrapped up with the technology that they have forgotten that there are human beings involved in the process.
And whether we feel good or bad about it, the fact of the matter is that there's inertia in place here and there are people who, for a long time, have been used to delivering higher education in a particular way, and for them to change, first is you have to have a compelling reason, in terms of products and services that make sense.
Two is there needs to be an investment in the training so that people, in this case professors, are able to adopt the technology and to use it effectively, and thirdly, there needs to be supporting infrastructure.
The fact of the matter is the technology that's available is way ahead of what was being invested, I think, throughout higher education to enable this to happen.
So the process has been slow and steady.
And it's important to say slow and steady, which with each semester that passes I'm more and more confident that people are seeing the lasting and enduring value that cam come through the effective application of technology to teaching and learning.
And let me give you a couple of examples of that.
My interest and excitement in this is not only because I believe that there are significant revenue and profit opportunities for Wiley's investment in higher education, I absolutely believe that there's tremendous value added that will come out of the adoption of this kind of enabling technology like WileyPLUS.
For years and years and years, public education, frankly in elementary and high schools and public higher education have talked about the promise of catering to individual learning styles and needs.
The fact of the matter is for years and years and years we have fallen far short of that by basically approaching education in kind of a mass scale, a professor in front of a large group assuming that all people kind of learn the same.
And with technology, what you're able to do is to certainly find common ground across many students, but individualize that instruction and provide remedial opportunities, tutorials all enabled by technology where both professors and students can get feedback and you can immediately understand where maybe the learning wane happening at exactly the level that you had anticipated.
And go back and do the remedial work that's required.
So that's extremely difficult in large classes with just print on paper text books, but you take professors, textbooks as resources, and online digital predicts like our WileyPLUS and suddenly you have a combination there that I think is really very dynamic, and what we're finding is that again slowly but steadily professors are embracing it.
Students, in many ways, are leading the charge.
We are getting feedback from students who have used WileyPLUS, for example, in one class, and what they're saying is that someone takes a principal of accounting course has used WileyPLUS in that class because the professor recommended it.
Had such success with it, when they're signing up for their financial accounting or their intermediate accounting course, they're saying you know what?
I want to take the professor and the course where they're using WileyPLUS again because I had success.
We're also finding outside the United States, I mention to you -- I give you these examples not because right now they're material, but they're great material in terms of revenue, but they're great leading indicators.
Could you imagine that I said to you today that one of the places where we're getting terrific success with WileyPLUS is Malaysia.
And I only say it that way is because you probably wouldn't think of Malaysia as a major higher education market for Wiley and historically it hasn't been a major market.
I use that as an example, I just recently mentioned South Africa as well.
The technology is helping places which may have had some difficulty delivering higher education effectively.
They are adapting this technology and finding success with it.
So we have a ways to go here.
We are absolutely committed to this because we believe in the long-term promise of it and, lastly, I want to say the -- this is obviously very attractive because we do believe it promotes knowledge and understanding around the world, which is integral to our mission here at the company.
In addition to that, I think what you're going to find is we're going to be able to price electronic delivery in higher education below the level that we were able to price textbooks and I think the outcome of that is we're going to have lower price points, more unit or usage, if you will, greater increases in volume, and at least as good if not better cash return on investment because the working capital requirements, specifically books and warehouses, will be lower.
So we have to get there.
It's going to take some time, but it's a win-win in my view.
Sorry that I went on a little bit there, but I think that's the essence of what we're working on.
- Analyst
Okay.
Thanks.
Just one or two more quick ones.
The initial revenue and cost synergies were one year out at that point and they were 90 million and 140 million.
Can you give us a little bit of feedback on how comfortable you are with those, whether you think that perhaps it can be sooner, later, one year in?
- CFO
Yes, Dave, this is Ellis.
The synergies that you cite are cumulative over the first three years, and we're still on track to realize the cost synergies and the revenue synergies.
We spoke about that earlier on as parts of the discussion.
As I said, in terms of the integration of the two business, some of the integration spending is delayed a little bit or a little bit later than we had initially planned.
That does not affect the ultimate level of savings that we'll achieve.
So just to be clear again is that the numbers you cite are cumulative over three years.
I'm still confident as to the run rate of savings and synergies that we'll expect at the end of the third year.
So as we exit three years, and I can note that in fiscal year 2010 is the first year that I'm looking forward to as a year that has no integration activity associated with it.
So that year, next year is a big year for us to sort of essentially wrap up all of this integration in fiscal '09 so that by the time we except '09, and are in our fiscal 10 which begins May 1, 2009, there will be no more substantially no integration activity going on.
The two businesses will be fully integrated together operating as single business and unit and we'll be on our path to realizing those annualized savings that we had noted in that year.
Which will be actually the end of the third year of the acquisition.
- Analyst
Okay.
Great, thanks.
And you touched on the -- the near term, the revenue synergies when we might see them.
Should we still expect not to see cost synergies until the beginning of the first quarter?
- CFO
There are -- so just to be clear, there are cost savings that are integrated into this year's results.
The issue is that when you net against that, the integration expense to achieve ultimately the goal of fully integrated cost savings, they're about equal, so nothing net sort of falls through this year.
That will begin to swing next year a bit.
But, again, clearly in 2010 there will be no integration costs, just savings.
- Analyst
Great.
Okay.
Thanks, guys.
Operator
Thank you.
(OPERATOR INSTRUCTIONS) We'll take our next question from Drew Crum from Stifel Nicolaus.
- Analyst
Just one house cleaning item here.
Just give us an update on uses of cash.
You've got $220 million on balance sheet.
Seems higher than usual for you guys and it looks like you bought some shares back in the quarter.
- CFO
Yes.
I appreciate your asking that question, Drew, I was actually looking for the opportunity to respond, because it is, quite frankly, a significantly higher number than you could imagine a company that's carrying something just south of a billion dollars in debt, why in the world would they have $220 million in cash setting on the balance sheet.
There are a number of pieces to that.
And I'm sorry this will be a slightly longer answer than you might have expected.
But of that $220 million, just to sort of set the stage here, 20 of that is in overdraft which just relates to physically when the balance sheet date occurs relative to what is clearing through your accounts, so we literally have 200 million in cash sitting in various bank accounts, principally not in the U.S., so there's only about $9 million worth of cash sitting in the U.S.
The remainder of the 200 is, which is 191 million, is all outside of the U.S.
and principally sitting within Blackwell and a piece of it also sitting within the UK as well, or let's just say non-U.S., non-Blackwell.
So you've got a number of things at work here.
We've talked in the past about this to white wash rules regarding our ability to extract cash out of Blackwell specifically, and we went through a white wash procedure some time ago to extract the initial cash that we had acquired with Blackwell, which you might recall was 100 million pounds.
So that cash was, for the most part, utilized and extracted in that -- in that iteration.
Since then, as you know, and as I thinks you've noted in some of your own notes, is that we had, as you would expect, a very strong cash flow quarter this past quarter which is no surprise to anyone.
Maybe the magnitude is but, as you know, much of our cash receipts from our journal business comes in in the period December, January, and bit more into February and then sort of tails off pretty significant into March, so that cash is relatively recent coming into the company.
Our ability to white wash that cash and use it effectively outside of Blackwell is somewhat inhibited by the statute.
However, sort of on the back of that is that one should note that -- well, you might not know this but Blackwell we pay royalties semiannually at Blackwell and a significant royalty payment which will be coming up in March so a fair amount of that cash will be used with respect to that royalty payment.
And also there is an interest payment due on that intercompany tax planning strategy that we've discussed, which is again relatively significant that will bring cash bark into the U.S.
So the answer is yes, $200 million of net cash on the balance sheet is much higher than I'd like it to be, and we have to deal with sort of the inhibiting factors related to white wash rules, also efficient tax planning, getting cash back here on a cash efficient basis, so it's a combination of those things, but you should know that we work on getting that cash back and it will get back here to reduce essentially our outstanding debt.
So an appropriate way to look at this, which I think you have, is to look at what our net debt position is.
I can also give you a little bit of comfort to tell you that a fair amount of the cash in the U.K.
on an unhedged basis is actually providing positive arbitrage on an interest income/expense basis.
So we're actually earning given the weakness of the dollar, actually earning more on some of the cash in the U.K.
than we are actually paying in interest in the U.S.
So it hasn't actually hurt us in the net effect other than the appearance of having an unreasonably high cash balance and having at the same time a significant amount of debt on the balance sheet.
- Analyst
Okay.
Great, thanks, Ellis.
Operator
You're welcome.
Now for our next question, we'll go to Carl (inaudible) with Princeton Capital Management.
- Analyst
Guys, I just wanted to follow up with that cash question, Ellis, on the reduction of long-term debt.
It looks like long-term debt dropped about 100 million and if that's correct or not, can you give us a little bit of a forecast going through the calendar year.
Can we expect about a $50 million to $100 million drop in debt going through the rest of the year?
- CFO
You may recall our peak cash quarter that we report is January.
So between January and April, in fact, the cash kind of goes a bit sideways to down.
So we'll actually be net barred a little bit higher at the end of the fiscal year relative to the end of the third quarter.
I think I've stated somewhere in the past that we expect to pay down an average of -- I'm forgetting exactly what the numbers, $150 million or so over the first three years.
I can tell you that we would expect significant paydown in debt if you measure into fiscal year to end of fiscal year kind of going forward.
It -- again, we have some of these issues to deal with, in terms of access of the cash that resides in Blackwell, so the timing of that might be difficult but relative to quarter end as opposed to the April year end we'll have some more time to work on that.
But, again, we still have to -- we're generating a significant amount of cash in Europe, in the U.K., in particular, and irrespective of the white wash, we're working on cash efficient strategies to get the cash back to the U.S.
to reduce debt.
In the interim, fortunately, at least, we're earning at least equal to or in some cases better than our cost -- our interest costs here in the U.S.
So we'll be working on tax strategies to get that down.
I would look at rather than looking at what the absolute pay down in debt is if the short term, I would look at more of what our net debt position is at any point in time to get a feel for how well we're performing against what our cash projections are and what our, as I say, net debt position is.
Operator
Thank you.
For our last question we'll go to Chris Joseph from Emery Investment Management.
- Analyst
Hey, Mr.
Pesce, it's Chris Joseph at Emery.
My question is also about the debt.
Given the timing issues, with regard to the debt, would there be a problem where you might need to access the credit markets before you get the cash back from Europe, and would that represent a problem in terms of --
- CFO
Sorry.
Sorry to break in there
- Analyst
Go ahead.
- CFO
Yes.
This is Ellis.
The -- we have a revolving credit facilities bite here and in the U.S., so we have access to, more than sufficient access, to capital here or there.
So it wouldn't represent new borrowings per se, meaning having a new line of credit.
These are existing lines of credit.
We utilize them over the course of the year to manage certainly the cash flow cycle of the business from high to low.
As I mentioned before, we're at a peak in terms of cash generation around the end of the calendar year into the start of the next calendar year.
So we have no need for additional lines of credit and the purpose of the revolver is just that, is to essentially manage cash against operating requirements of the business over the course of each fiscal year.
So we're in quite good shape there.
- Analyst
Okay.
Great.
Thanks.
- CFO
You're welcome.
Operator
And we have no further questions.
Mr.
Pesce, I'll turn the call back to you for any closing remarks.
- CEO, President
Thank you very much for your thoughtful questions and your continued interest in our company and it's business.
We look forward to speaking with you June when we'll report our full year results and provide our outlook for the forthcoming year.
Thank you very much.
Operator
Thank you, and, ladies and gentlemen, that does conclude today's conference.
We appreciate your participation.
And have a wonderful day.