John Wiley & Sons Inc (WLY) 2010 Q4 法說會逐字稿

Welcome to the John Wiley & Sons quarterly earnings call. Before introducing Will Pesce, President and Chief Executive Officer, I would like to remind you that this call is being recorded and may include 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 10K and 10-Q filings with the SEC. The Company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances. Mr. Pesce, please go ahead.

Welcome to Wiley's year-end conference call, I'm with Ellis Cousens, Steve Smith and Brian Campbell. I'll provide an overview and then we'll respond to your questions. During a series of town hall meetings that I conducted about a year ago, I spoke with my colleagues about the unique opportunities to distinguish Wiley from other companies during a period characterized by turmoil and financial markets, high unemployment and sluggish markets. I reinforced the importance of protecting Wiley's culture which is built on a solid foundation of trust, ethics and integrity. I encouraged my colleagues to stay focused on Wiley's missions, strategies, and goals by picking our fights carefully and generating results that would make us proud.

I promise that we would continue to invest in our future while managing expenses and cash prudently. The response to those commitments was truly inspirational. I received messages from colleagues around the world, most from people deep in our organization, colleagues whose shoulders we lean on each and every day. When we decided only colleagues, with annual salaries less than $75,000, would be eligible for a merit increase in fiscal year 2010, an administrative assistant wrote to express her willingness to forego her modest merit increase if it would help to protect someone else's position. Clearly, our organization embraced my message. I am pleased to report that Wiley performed admirably in fiscal year 2010 exceeding our expectations while adhering to our values faithfully.

In addition to our financial results, Wiley was recently recognized as a great place to work by various publications in New Jersey, Indianapolis, and San Francisco. When three long-term contributors to Wiley's success, Eric Swanson, Stephen Kippur, and Bonnie Lieberman announced their retirement plans, internal successors were ready-to-serve as members of the Next Generation of Leadership. These successors, Steve Miron, Mark Allin, and Joe Heider are products of Wiley's professional growth and leadership development process. Steve Smith and I are, as well.

Wiley's performance in fiscal year 2010 is a compelling story about the quality of our content and its value to our customers, effective execution of our digital strategy and new business models and the strength of Wiley's culture. In a challenging environment, we gained market share, increased earnings, generated strong free cash flow and reduced net debt significantly. Wiley's fiscal year 2010 revenue of $1.7 billion increased 5% over prior year, or 4% excluding the favorable effect of currency. Excluding restructuring and impairment charges EPS of $2.58 was 20% higher than prior year, or 6% excluding the favorable effect of currency. fourth quarter revenue grew 8%, or 5% excluding the favorable effect of currency, strong growth in Higher Education and Professional/Trade drove the top-line results.

Excluding restructuring charges, EPS increased 12% in the quarter, or 17% excluding the unfavorable effect of currency. Revenue growth and lower interest expense were partially offset by a higher effective tax rate, increased investments in technology and higher performance-based incentive costs. Wiley's gross margin in fiscal year 2010 improved from prior year, reflecting benefits of increased revenue from Higher Education's digital products and price increases, cost savings generated from offshoring certain STMS journal production and the reclassification of some STMS costs. Shared services expenses for the full year were 4% above prior year. It's noteworthy that technology-related expenses, including information technology and web publishing technology, increased 10% over prior year on a currency neutral basis, exceeding $100 million for the first time in Wiley's history.

Full year free cash flow of $215 million was up 32% from prior year, including $31 million in discretionary accelerated pension contributions. Approximately $37 million of free cash flow was due to prior year journal renewal processing delays which increased cash collections in fiscal year 2010. As a result, net debt was reduced from a year ago by $224 million to $495 million at fiscal year End. While accounts receivable increased from prior year, as a result of growth in book sales late in the year and the effect of currency, day sales outstanding improved by eight days. Inventories decreased from prior year reflecting top line growth and improved inventory management partially offset by currency. Increases in product development assets and [PT&E] were primarily driven by investments to support future growth, particularly composition costs and Wiley Online Library.

Earlier in the year, the Company reported a $14.3 million, or $0.17 per share impairment and restructuring charge principally related to GIT Verlag, a German language controlled circulation magazine business. As a result of the actions we have taken, we anticipate improved performance from GIT Verlag in fiscal year 2011. Other restructuring charges included $0.8 million in the fourth quarter related to offshoring certain STMS marketing and content management activities to Singapore. These charges are expected to be fully recovered within 18 months from implementation. STMS revenue in fiscal year 2010 of $987 million was up 2% but essentially flat with prior year, excluding the favorable effect of currency.

Higher revenue from rights, individual articles and the Cochrane Library offset lower revenue from advertising and journal subscriptions, the improvement -- excuse me, in rights income principally the rights to one-time settlement. Excluding the transfer to Higher Education of books previously reported in STMS, book revenue increased 2% over prior year. Online book revenue grew 44% in fiscal year 2010 to $6 million. There is a growing trend for institutional library customers to purchase digital books.

Excluding unusual items, STMS direct contribution to profit for the full year of $420 million was up 5% from prior year but essentially flat, excluding the favorable effect of currency. Top-line results, the effective offshoring initiatives, the completion of Blackwell-related integration activities and expense control were partially offset by increased costs associated with new business and a favorable bankruptcy settlement of $2 million received in the prior year. fourth quarter revenue was up 2% but essentially flat with a strong prior year excluding the favorable effect of currency and excluding unusual items during contribution of profit increased 4% or 5% excluding the unfavorable effect of currency.

In STMS calendar year 2010, journal renewals are nearly complete and showing mid-single digit growth over calendar year 2009 on a currency neutral basis. We added many new journal customers, a testament to our global reach, opportunities in emerging Markets and the quality of the Wiley offering. In the fourth quarter, licenses were completed with library consortia in the US including the California Digital Library, California State University, Columbia University, Georgetown University, and the Florida Consortium. Outside the States, significant licenses were completed in the UK, Israel, China, India, Japan, Hong Kong, Brazil and Mexico, among others. In fiscal year 2010, STMS signed 32 new society journals and 90 renewals or extensions. Only two journals were lost to competitors during the entire year. These results compare well with prior year.

Wiley Online Library is set to launch in July replacing Wiley InterScience. It will host one of the world's broadest and deepest multi-disciplinary collections of online resources covering life and physical sciences, medicine, humanities and social science. Wiley Online Library will provide access to over four million articles from 1,500 journals, 8,000 books and hundreds of reference works, laboratory protocols and databases. It will feature a simple interface, intuitive navigation, enhanced discoverability, expanded functionality and a range of personalization options. Users will be able to discover, read, download and cite journal and book contents, early view articles, backfiles, related material, and supporting data.

Wiley's Chinese language website launched in April, designed to enhance customers experience with tailored sections for librarians, authors, societies and industry partners, WileyChina.com will feature information about Wiley's presence in China as well as details about the content of interest to the Chinese community. The Cochrane Library is now available to more than 650,000 students and faculty at 47 universities in Germany as part of a new agreement, which allows access to a collection of updated evidence-based healthcare databases for a period of ten years. Professional/Trade revenue in fiscal year 2010 of $430 million was up 7%, or 6% excluding the favorable effect of currency. Growth was driven by consumer, business, and technology sales in the Meredith and the Graduate Management Admissions Council agreements.

Professional/Trade direct contribution of process of the full year of $100 million was up 12% or 11% excluding the favorable effect of currency, mainly due to top-line results and contingency expense savings partially offset by higher performance based-incentive costs. fourth quarter revenue increased 18%, or 15% excluding the favorable effect of currency, direct contribution of profit increased 47% or 39% excluding the favorable effect of currency. Nearly every publishing category showed solid growth in fiscal year 2010 with particular strength in the Americas and EMEA.

We continue to form mutually beneficial business relationships including a new publishing partnership with Bloomberg and an eBook agreement with Apple. In the States, Amazon sales were up strongly over prior year, Borders finished the year well up nicely from a tough prior year, Barnes & Noble was up, also. Mass merchandisers increased mainly on the strength of the Meredith Publishing program. Inventory on hand at major accounts is well within an acceptable range which should bode well for the first quarter of fiscal year 2011.

Professional/Trades digital revenue for the full year reached $36 million up 13% over prior year. Full year sales of eBooks were up 93% to $7 million. CliffsNotes.com advertising revenue in fiscal year 2010 grew by 28% over prior year and in March, Dummies.com reported record monthly traffic. Higher Education revenue in fiscal year 2010 of $282 million was up 18%, or 15% excluding the favorable effect of currency. Double digit growth was experienced in all regions and nearly every publishing category. Full year results include revenue from books previously reported in STMS and Professional/Trade.

Excluding these books, Higher Education growth was 13% on a currency neutral basis. Higher Education direct contribution of profit for the full year of $86 million increased 29%, or 25% excluding the favorable effect of currency. Results were driven primarily by top-line growth and gross margin improvement. Gross margin of nearly 66% improved for the second consecutive year and is up from 63% in fiscal year 2008. The improvement is attributed to inventory management and digital revenue. fourth quarter revenue grew 27% or 21% excluding the favorable effect of currency. Contributing to the results were a strong front list, continued growth in Wiley Plus, the Australia School of Business and a strong growth from the Microsoft Official Academic Course Program. Higher Education is direct contribution to profit improved by $1 million from prior year.

Wiley's Higher Education Business outperformed the industry, reflecting the strength of our front list, increased penetration in community colleges and four profit universities and continued revenue growth from Wiley Plus and other digital content. Full year growth rates by region on a currency neutral basis were 16% for the Americas, 17% for EMEA, and 13% for Asia Pacific. Wiley Plus revenue for the full year grew 42% to $31 million, accounting for 11% of Higher Education sales. Wiley Plus digital only sales grew 55% to $10 million accounting for more than one-third of Wiley Plus sales. Sales of eBooks, digital content, Wiley Plus, Custom Select and so called Binder editions, generated $61 million in fiscal year 2010 or 22% of Higher Education sales.

While we are mindful of the volatility in Markets around the world, we believe the ongoing shift to knowledge-based economies, the robust demand for outcomes-based learning, and investments in research and development bode well for Wiley. In fiscal year 2011, we anticipate another year of solid growth in revenue and earnings with contributions from all of Wiley's global businesses. Specifically, we expect mid-single digit revenue growth excluding the effect of foreign exchange. Growth in operating income and reduced interest expense will be partly offset by a higher effective tax rate and an increase in shares outstanding. Excluding the effect of foreign exchange, we are projecting EPS growth of approximately 10% from fiscal year 2010, adjusted EPS of $2.58. As you know, the US dollar has strengthened considerably. That will have an unfavorable effect on Wiley's reported revenue and EPS growth, beginning in the first quarter of fiscal year 2011.

I'd like to conclude with some information from an investor perception study that was completed by my colleague, Brian Campbell. Interviews were conducted with new shareholders, long term investors, former investors, prospects and analysts. The reasons cited by participants for investing in Wiley include the Company's free cash flow, the shift to knowledge based economies, recurring revenue and digital opportunities in STMS, Wiley Plus prospects, and management's consistency and ability to execute. This quote captures these thoughts, "The world is going digital and I believe Wiley is perfectly positioned to benefit from that transition. I also believe that anything tied to education is the place to be long term. I love the digital opportunity, the consistent growth, long term focus, and the international opportunity. I invested in management as much as I did the business, their long term focus, they have the foresight to invest in digital when no one else did."

Our leadership team appreciates the following quote from that investor perception study, "Management is probably the most forthright of all of the companies we cover. Many companies will not answer the question directly, instead dancing around the issue. Investors feel they are hiding something. Not so here. Investors are fully confident in Wiley's transparency and the honest discussion." One final quote in the spirit of full disclosure, "In terms of conference calls, management talks a bit more than what is typical, so the call ends up being a bit longer than it should be, but in the same token, it's good to see the passion." I suppose that means I should stop talking. We welcome your comments and questions.

Ladies and gentlemen. (Operator Instructions) Our first question comes from Drew Crum from Stifel Nicolaus.

Great, thanks, good afternoon everyone. Let me start with a couple of questions on your guidance for fiscal 2011. First, you cited expectations for growth and operating income. Can you talk about the sources there? And then you guys are coming off a year of 15.2% operating profit margins. I believe that's approaching a record high. What are your thoughts on the profit margin going forward?

Well, in terms of the operating -- this is Will, Drew. In terms of the operating income growth, it is mainly top line driven and as I've noted to you earlier, and we've talked about for, I suspect, a number of years now in some of our businesses, particularly in Higher Ed, the move to digital and specifically Wiley Plus. We're beginning to show in our financial statements the financial benefits of that in terms of gross margin improvement. So to the extent that digital continues to become an increasing part of our business, that will certainly have a positive effect on our gross margins. Obviously, partially offsetting that are the investments we have made and continue to make in the enabling technology whether that be Wiley Online Library and Wiley Plus. And I would like to say one additional thing about that.

I noted because I believe it is a milestone that when you take our information technology expenses and our web publishing technology expenses. And I quote a number of $100 million and that's the first time in Wiley's history. There are a couple of different ways I think people can react to that. One is, my goodness, that's an awful lot of money for a Company this size, and the answer to that is, yes, it is a lot of money in a Company this size. It is also the investment that has helped to drive the market share gains that I've been talking about. And I'd like to point out that the Company's experience in terms of either maintaining or increasing margins was accomplished while we were making investments that we didn't have to make a decade ago. So that we're finding ways to make these investments in our future but becoming more productive in other areas so that we can finance that without margin dilution.

So when all is said and done, I think what you should be looking for is incremental improvements, all things equal. If we can get the top-line growth incremental improvements could be happening on the margin side largely driven by the digital part of this and of course, everything I'm saying has to do with being on a currency neutral basis. So I'm sure we'll talk a little bit more about that later, but that's basically what we're looking at in terms of what's driving the current performance and what's likely in the future.

Okay. And Will, just sticking with the digital steam here, you noted that eBooks, digital content, Custom Select and Wiley Plus were $61 million of revenue and if I back out Wiley Plus you've got $30 million from those other three sources in fiscal 2010. Can you talk about the growth profile for those businesses and what the margins look like?

Well, the -- at the risk of stating the obvious and as far as I can go with some of that detail is just about every form of non-print, so we use the word digital which encompasses quite a few different things, Wiley Plus and Higher Education being certainly the headline. That is all growing faster than the print-on-paper traditional textbook business and the price points on -- I suspect I can say, on all of that, I believe that is the case in just about every situation, the price points are lower. But the margins are actually more attractive. And the other thing that happens here in terms of -- we often talk about recurring revenue in the context of STMS, and I know a lot of our investors like the recurring revenue in STMS.

I want to emphasize that our Higher Ed business is moving more and more to a recurring revenue stream, to the extent that you have a Wiley Plus or to the extent that you have some of these other digital additions or eBooks or whatever, you start taking market share if you will from alternative sources of that information, like used books or book rentals or whatever. So what happens is you start getting revenue not only in the first year that you "publish it" but also in the second year and the third year as well so all of that is growing on a percentage basis faster than the print-on-paper textbook business. All of it has favorable, in my view, financial implications. Obviously it's getting larger but still relatively speaking, print is still the biggest part of that business, but the digital part is growing the fastest.

Okay, and want to go back to the guidance. Based on the mid-single digit top-line growth for 2011, you're forecasting -- are you willing to provide any additional guidance by segment?

Yes, as you know, we're very careful about the beginning of a new fiscal year and we all know about the volatility everyone is dealing within different markets around the world so we try to be very responsible about the level of guidance that we provide here. What I can tell you is we are sitting here talking together today and you want to keep saying on a currency neutral basis because that's an important consideration, I would emphasize the following points. One is, when we talk about mid-single digit growth for the Company, I want to emphasize that we see strong contributions from each of our businesses. I also want to emphasize that right now as we're sitting here, we see the growth in each of the businesses clustering pretty closely around the same percentages. Pretty closely. It's not huge differences, for example, as we experienced this year on one extreme Higher Ed, on the other, STMS, we see that clustering more around the three businesses at a fairly comparable rate. And to provide a little bit more, I already said this, but I'll repeat it because it's important.

We experienced in calendar year 2009, on a currency neutral basis, 5% growth in our STMS journal license business and when you look at what we've accomplished so far in 2010, we're talking about mid-single digit. That is a positive leading indicator for us in terms of the effect on fiscal year 2011. That doesn't represent 100% of STMS's revenue but if you take that and some of the other things that we're doing you can reinforce my point about what I've been saying about the other businesses. The Higher Ed industry had an incredible year. The industry did in calendar year 2009. We outperformed the industry. We're not expecting the industry to grow at the same rate that it did in 2009 but we're still expecting growth in the industry and we expect to get our fair share of that business as well. So I think those are the comments I would add in addition to what I've already said about the three businesses.

And just to follow-up on one comment you made Will, the mid-single digit increases to the journal renewals, is that where you thought you'd be or is that a little better than what you'd expected when you went into this process?

This is Will, the CEO speaking. It's a wafer better. It was a lot of uncertainty going into this cycle, and any of you who were following this business or this industry or whatever and we're all well aware of the challenges that libraries and others have had to deal with. So we're not a cocky and arrogant group of people. We don't take anything for granted. We didn't want to assume anything. We relied on the quality of our content, the relationships we have with the societies and the library community and I want to emphasize, many of you were very enthusiastic and supported this management team's decision to buy Blackwell a few years ago. We talked about how that content would really be a wonderful addition to what Wiley has, so you look at the quality of our offering, I think what we're reporting here is an indication that the Company is doing well in a pretty tough economic environment and I think that represents all of the things we've been talking about.

So, yes, it came in a bit better than I expected and I would also ask you to take into account, when you're looking at the reason we talk about calendar years is that's how that journal business operates, when you look at the fiscal years you will recall last year, the fourth quarter had a big pick up because we caught up on some of the renewal processing deals. So if you didn't have that and you looked at the fourth quarter this year, you'd feel those numbers would be a higher percentage increase. So that's why I say I feel good about how we ended the year, I feel good about how we're progressing on the 2010 calendar year and we had good news on the calendar year 2009 as a base to build off of.

Great. One last question for Ellis. Can you give us some indication as to how you intend to redeploy cash? I believe your leverage is now under one 1.5 times. Is the strategy going forward to continue to pay down debt or do you look to get more aggressive with acquisition, share buybacks, et cetera?

Drew, it's Ellis. So yes, thanks for the question. So we are in a very good position with respect to our debt and our net debt position, $495 million of net debt, so we were comfortable -- I've been asked this question, I think now for about two years or so. And we've been comfortable all along but having been through this economic cycle and sitting where we are with respect to our net debt position, we do have a change in posture to a degree to focus -- continue to focus yet on reducing debt to the extent there are opportunities to make acquisitions that fit strategically with some of the things that we've been discussing over the past couple of years or so. And -- but clearly, acquisitions rises up in terms of priority and is sitting fairly close and it's not equal to a debt reduction. However, one can't make those happen necessarily, so it's a function of what is available.

We, in fact have specific goals and ideas in mind with respect to our acquisition strategy as Will has talked to in the past, content is less emphatic or still important but looking for capabilities that advance our digital strategies is at least equally important if not more so going forward. So we are looking for those kinds of opportunities and we feel that we're in a position from a financial perspective in terms of leverage, cash flow generation and business performance to make some of those to the extent they are found in the opportunities can be taken advantage of. In terms of share repurchase, that does come back into the mix certainly to the extent that acquisitions, we did increase the dividend today by $0.02 a share. So that's a pretty healthy increase in the dividend, still relatively modest from a cash consumption perspective but certainly another way to deploy cash, so share repurchase yet does factor into that. However, that's a function, again of other opportunities to deploy cash around acquisitions which I would say becomes a real priority and an opportunity given how low our level of leverage presently is.

Okay, thanks guys.

(Operator Instructions) We have a question from David Lewis from JPMorgan. Go ahead, please.

Hi, guys. Good afternoon. Will, I just want to see if you can -- you guys clearly did a great job with the STMS renewals. I was just curious if you could drill down into how much you outperformed the market or how much of that was driven by market share gains and if you think that's sustainable going forward?

Well, I'll start and then I'll ask if either Ellis or Steve want to jump in. It's actually a pretty difficult thing for me to be precise about. We get very specific industry information in Higher Education. The STMS market is a little bit more complicated because of some companies are very heavy on the scientific and technical and there's a medical and clinical side and it gets a little bit confusing. So in terms of how do we feel -- I said it was better than my expectations so then maybe it's helpful to you as how does this CEO or this Company think about that performance and either feel good about it or not? And since there isn't easy information for the segment that I can easily draw on, we do look carefully when it's available at how other companies are performing and what they are reporting and again, we do our best to try to understand the underlying performance and we believe when you look at the calendar year numbers 2009 and what we've reported to you 2010 that, that would withstand the scrutiny of most objective observers to say Wiley did pretty well in that environment.

The other thing I can tell you and I made this comment we just completed earlier today, our Board of Directors meeting. And I commented to them that how proud I am of the people in STMS, who are at the point of contact -- who have been face-to-face with our major customers helping to address the library budget funding issues that they have while wanting to gain access to our content, and figuring out ways in which Wiley could fulfill its obligations and responsibilities as the publisher we are while generating a reasonable financial return. And I can tell you that when we come to this outcome, it feels to me that we did very well relative to others and that I think in pretty difficult circumstances, I suspect we're going to get the benefit over time in terms of even stronger relationships with the communities that we serve.

I often say when things are going really great, it says a lot about people & companies but when people are dealing with very difficult circumstances, how you conduct yourself and how an entity conducts itself says a lot. And I think we're going to come out of that in pretty good shape, so I can't give you a specific percentage but I think those of you who follow this industry know some of the numbers that are out there and then, you know the numbers that I just quoted and I think you come out that we did all right in terms of market share.

I'd just point to maybe two potentially leading indicators that are indirect, so I agree with Will. It's very difficult to directly draw conclusions but I think as indirect indicators and certainly leading indicators, if you look at -- as we outlined in the earnings release that business under license now has increased from 60% to 71% over last year, so -- sorry, from 60% last year to 71% this year that essentially, we converted a significant number of licenses and a substantial proportion of revenue from annual revenue, so to speak, that needs to be renewed on a journal by journal basis each year to multi-year licenses. Most of those changes to license deals are multi-year license deals so that would speak to some potential stability in terms of forward-looking customer retention, shall we say, and license values, the license values speak for itself in terms of growth for this year.

The other piece I think that one might be able to look at as a leading indicator is that we saw exceptional strong growth in Asia Pacific and Latin America and those are markets that we're --- it's not to say that others aren't there but we're certainly there in a bigger way than we have been in the past. So certainly there is growth ahead of where we certainly have been in the past and probably ahead of where the industry is because we were probably less represented there than we have been in the past. That's not a negative statement, it's very positive statement, so I think that's a relatively good leading indicator that there probably is market share associated with that.

That's great. Thanks, Ellis, for the additional comments there. Ellis, could you just provide us with any color on cash flow projections for this year, specifically to pension and perhaps any other timing issues that could influence cash flow for this coming fiscal 2011?

Yes. I can provide some commentary on 2010 and 2011 that would be somewhat general and I'll do that, but not leading to a specific number, if you will. In 2011 -- sorry, in 2010, certainly as we've discussed at the end of last year and through this year and again, today, is that there was about $37 million or so of journal cash collections in fiscal 2010 that related to 2009 business as it were. I'm pleased to report that our journals processing and billing cycle this year for calendar year 2010 went very well. There were no problems or issues associated with it so we have a more normal cash collection in calendar 2010 related to the 2010 process that will affect fiscal 2011 so the point there is that, that $37 million that was out of place from 2009 to 2010 is not to be repeated in 2010 to 2011.

That, of course, expects that our collections at the end of fiscal 2011, meaning for calendar 2011, go normally again. And that's what we expect, is that we have our processes pretty well laid down, no issues there to report so we're confident that we'll replicate, at least from a billing and collection process the same thing. That's not a guarantee about how calendar year 2011 renewals might go but the process itself should work quite well, so that's one thing and it's relatively significant. I think there isn't anything to say on discretionary pension contributions as you might recall from, I think, about two years ago. We discussed changes in statutory requirements with respect to pension funding in the United States and also to a degree in the UK with respect to pension funding and some of the issues surrounding that was if one was not fully funded. So what we have done but far over the past -- well, beginning two years ago and now this being quite the -- this being the third year is we've been truing up to what is statutorily required in the future.

So there is more distance to go there but it certainly is a lot less than it was, but for the last three years, so not much more to say about that in terms of differences year-on-year but which is simply to say that there is additional contribution and discretionary means not with respect to forever, it's discretionary with respect to time, so we have more time to make those contributions. We could literally wait until the last year and do it but that wouldn't be prudent to do. So we are doing it paying as we feel justified as we go, so to speak, so that might be an aspect of change year-on-year but not one that I can predict at this stage. There's always a little bit of timing around accounts payable in terms of when your check runs are, things like that, I can't speak to that quite frankly, who knows. That can be a swing of $5 million to $10 million depending upon how your calendar lays out and it was a little bit of a detriment, I'll say to fiscal 2010, so it might be a slight benefit unless we have exactly the same pattern of payments at the end of the year in 2011.

Also, that our tax rate is higher, Will alluded to what our statutory rate increase -- not Will, sorry, the earnings release alluded to an increase in the statutory rate and there's also an increase in our cash tax rate, so the rate of taxation from a cash perspective will increase. That principally relates to the value of the real deduction which we've talked extensively about that I won't go into here in the spirit of keeping the answers shorter than they might otherwise be, although this isn't a short answer, so there's an increase in cash tax rate associated with that. The last thing I would allude to and it has to do with fiscal 2010, so we accrue incentive payments associated with performance against targets and goals in the current fiscal year.

So we've essentially paid for, from a P&L perspective, our incentive payments, we did allude to higher incentive payments over the course of the year so there is cash above what would be our targeted incentives that would need to be paid physically in 2011. So that would be if we did not perform it at exactly the same level and have targeted payouts in 2011, it would be a negative cash effect in 2011 related to what carries forward in terms of cash outlay related to 2010 performance. I don't know if all of that or any of that helps but it provides some color, I hope.

Yes, absolutely. Thanks a lot, Ellis. Just getting back to the tax rate for -- are you able to provide some forecast if that array of 30% is going to stabilize in, say, fiscal 2012 or do you expect further creep there?

That's a very good question. It's a -- I would, well there's a number of things that bear upon that. One is, how interest rates might move with respect to the value of the [wheel] benefit that we just -- I spoke a little bit about, foreign exchange, that is a Sterling benefit. So to the extent that Sterling strengthens against the dollar it increases in value, there are other factors associated with the fact of differential corporate tax rates in the United States versus our other two principal locations where most of our pre-tax earnings are, although we earn certainly on a global basis but in the UK and Germany. Both the UK and Germany have substantially lower corporate tax rates to the extent that any of those rates change on a relative basis that will affect our corporate tax rate or change on an absolute basis as well.

So where our earnings and profits are so to the extent we have faster growth in lower tax locations like the UK first, then Germany and then the US. That would bear upon the distribution of taxable earnings so that would affect what our rate would be and there are other aspects that might affect our tax position related to where we are, the state of New Jersey and state tax policies. As you know, everyone is hungry for revenues so I know you're asking a question probably having not to do with change in statutory rates but assuming statutory rates do not change, the [wheel] benefit is a fair piece of it and then the distribution of pre-tax earnings among the US, UK, and Germany would be the principal drivers.

Great. Thanks, Ellis. Just a couple more quick ones for me here. Will, can you talk about the Apple agreement and how the contract terms there that you're able to speak about are different than the Kindle agreement and some of the others that you're involved with?

I'll just make a quick remark and then I'll ask my colleague, Steve Smith, who is very much involved in that. The quick remark I want to make is just to remind you all that Wiley's digital strategy has been based on having our highly sought after content available through as many relationships, devices, platforms, whatever words you want to use is to do our very best to promote accessibility and discoverability of our content on reasonable business terms. So we're not locked into any one or two or three devices so whenever there is something else available, we do open up discussions with people to see whether or not we can come to reasonable relationships and then with that, I'll ask Steve to comment specifically on discussions with Apple and the agreement that we just signed.

Yes, Dave, hi, this is Steve. So we have been speaking with Apple pretty much since they announced the launch of the of the iBookstore and the launch of the iPad. As Will alluded, we have multiple channels to market with eBooks through the Kindle, through the Barnes & Noble NOOK, various proprietary devices. One of the things that we wanted to make sure was that there was no conflict between channels as we signed a new agreement and as you are probably aware, probably [behind] your question, the realization that the Apple agency model is somewhat different to the reseller model that's in place with Amazon.

So over a period of a month or two, we've been speaking with Apple and with other partners just to make sure there is no conflict there and happily reached the point, actually last week where we could agree on going forward with the Apple iBookstore. Of course, even before we made that agreement, books have been available to the (inaudible) purchasers of the iPad through the Kindle application, for example, on the iPad. So what we see here is a great opportunity to give customers more choice enabling them to buy books in whatever way they want to and to use them on multiplicity of devices.

That's great. Thanks, Steve. I'm going to hop off. I'll probably swing back if there's nobody else. But thank you.

Our next question comes from John Helmer from Caldwell Securities, Inc.

I don't know how important this is but your press releases, at least in my instance, are not being picked up by my quotes service and I think the explanation for that is that the ticker symbol you use in your press releases does not involve a separator. You're using the JW and then the lower case A or B. I think there's a [garden] variety of separators that are being used is quite confusing, but I just wonder if there is something that could be done about that.

John, this is Ellis. We'll look into that. I'll investigate that. Thanks for bringing that to our attention.

Thanks.

Our next question comes from Drew Crum from Stifel Nicolaus.

Hi, thanks again guys. Just want to get a sense as to what advertising was as a percentage of the total business for fiscal 2010 and then we seen from some of our other media names advertising starting to come back. Is that something you're starting to see with your business?

Drew, advertising, the last time I got a solid number, I think, was on a $60-some-odd million range on a $1.7 billion base. There certainly has been some degree of softness so looking at numbers as I go it's about 3% of revenues in fiscal 2010. We do expect some recovery online and I'm pleased to report that as we've described in some of our communication that we're launching Wiley Online Library late July this year that will provide for a new vehicle or enhanced vehicle for online advertising. So I don't want to ring bells here and say, okay, there's going to be tens of millions of dollars pouring out of advertising with the launch of Wiley Online Library but it is another medium through which we can bring online advertising into the marketplace and generate revenue.

Okay and that was my next question, on the Wiley Online Library. When you flip the switch, are you anticipating a significant uptick in revenue? What are the additional revenue opportunities there? You mentioned advertising. Is there anything else you can speak to there and is there any incremental investment spending around that, that we see show up in the cash flow statement? Thanks.

What we should see is certainly increased usage so to drive significant increase in usage over time which will do either of two things or hopefully both of those. One is to support existing license models some of which are -- many of which are not based directly upon usage but certainly librarians in terms of making decisions look to usage as an indicator of the value of their collections to their customers, meaning the researchers. So it will drive usage and support, at least, at a minimum what we have in place, but certainly could drive by way of higher usage opportunities to increase license values. Also outside of online advertising certainly a lot of what is embedded within Wiley Online Library, which we served customers, our society partners, fairly well with InterScience but not to the degree and to the quality and extent in terms of the experience from the society perspective as we can in Online Library.

It presents societies in a much better light, much better way. It provides greater tools and useability for in terms of exposure for societies and for their members as well, so one would imagine that it should increase our opportunity and our ability to compete effectively for new society contracts and retention of the ones that we presently have. So that's an avenue of opportunity. There are also other opportunities that are probably a bit more tangential, having to do with the services that we can support and host in Wiley Online Library, which could, again, hopefully drive usage and stickiness and keep customers closely associated with it. Probably that mostly having to do with journals.

Also, it provides a much better platform for us to bring and transition more and more of our book content online. We find more and more that our customers are interested in STMS books online, so there we see growth in our print book business in STMS. We don't see as much growth clearly with the transition of the ability to transition that content online in Wiley Online Library, old books will become a growth engine for the STMS business. So that's another opportunity.

Okay, and just a follow-up. The incremental CapEx, you're anticipating in fiscal 2011, is that expended already?

Yes, we -- when you get the 10-K, which we'll file next week, you will see that our actual spend is $48 million in fiscal 2010. We're anticipating approximately $60 million of capital spending in fiscal 2011. There will be a lower number with respect to product development going from 155 to about 145 so a slight increase overall and that $12 million increase in capital spending is almost entirely coming from software development, technology enabling activities which we've talked to in the past is that, as we continue to see a lot of success as borne out in our numbers with respect to our digital strategy, we're encouraged to invest more and more behind it and that shows up for the most part in capital. Much of that is capitalized and capitalizable, as has been most of the development expense related to Online Library, so hence the growth in capital spending associated with our technology in digital strategy.

Okay, got it. Thanks guys.

Our next question comes from David Lewis from JP Morgan.

Thanks guys. Just two more quick ones here. First is, Will, can you just comment on STMS and all across the different regions and customer segments? And is it fair to say that it should be, going forward, an easier contractual discussion with the majority of them going forward?

I'm never going to acknowledge anything is easy. So no, easy. I'd rather, Dave, if you don't mind in talking about this, so what about what's happened in the last year that was different from what's happened in the past? I think what's happened in the last year is that these discussions took longer and they took longer because there was some uncertainty with people, their budgets were bouncing around and stuff. And people were obviously looking very careful at where they were going to be spending money, so if that meant a degree of difficulty that it went up because it took longer, we had to follow-up a little bit more, find more support going into it, okay and I wouldn't think that's hugely different as we continue to complete the cycle that we're in. I don't think there's really -- there was nothing else that was particularly unusual about this round of negotiations.

Going into it, we expected that maybe it was going to be a matter of degree a little bit more challenging in the States than it was going to be in other parts of the world because of, again, the cycle each of these economies was in. And I'd say yes, in some cases that was true but I think we can probably now say that we're entering the next phase of this. I'm not looking for anything materially different from the way those discussions have gone on in the next year than they did in the previous year and during this period of time which you hope, of course, is that some of the funding improves. And two, is that we are in an even better position as we go through this because of services like Wiley Online Library and because of the content that we have. So that's really I think, in many ways, having to launch this new service will help those discussions because I think our customers will appreciate the functionality that they are going to get from that. So I don't think there's much more I could add to that right now.

That's great.

I think that's, by the way, good news.

Right.

I don't want you to be disappointed.

No, just this is a business that has been viewed as lagging because of the way it's funded as lagging business so that's why I wanted to probe a little bit and that's helpful. The final question for me and I appreciate it, guys. Can you just comment on -- I'm curious, there's about 30%, I think it's 36%, of Wiley Plus revenues that are online only. I'm curious where you see that percentage moving in time, say in three years. I'm just curious where you think that's moving strategically. Are -- do you think most users are going to become more online only or do you think a book is going to complement that for some time going forward?

This is Will again. I can't really document what I'm about to say. It's based on experience that we've already had and it's based upon the feedback that we get from both students and professors, so the obvious thing that I can say to you is yes we do expect digital only percentage to increase. Many of us expect that, for as far as we can see into the future that, that there will be some print component but it may not be a full print textbook. That the digital part will move to become the primary part of this and that the print would be more of a supplement and it may not, I repeat, be the whole textbook. And we -- some of us are speculating that maybe some of the budget constraints and certainly the emphasis on how come this based learning could accelerate that trend. I can speak to someone who cares very much about education, me, and that goes beyond my role as a CEO. I would love to see that happen, because I really do think tools like Wiley Plus are helpful with people with different learning styles and needs and abilities.

And I think it also is we're proving that you can document the effectiveness of teaching and learning with these kinds of tools, so you should expect it to continue to trend upward as a percentage of the total business. I think you could reasonably expect for the foreseeable future two, three, four years that they will continue obviously, maybe beyond some print component of that. I think the mix of it is pretty hard for me to call right now, but I've been talking to you and these calls for a long time now and I have to go back to my notes about the first time I started talking with Wiley Plus. But the thing I can tell you is I've been enthusiastic from day one and what's playing out here is exactly what we had hoped is that when we started making these investments that we would be in a position where we could begin to report to you on our scorecard meaningful revenue, customer satisfaction, gross margin improvement, those things. So the trend is positive and I expect it to continue.

That's great. Thanks a lot guys.

Our next question comes from Drew Crum from Stifel Nicolaus.

Hi, thanks, last question, I promise. Ellis, to the best that you can, can you give us an EPS guidance number, a range when you load in foreign currency assuming today's spot rates? I know you guys gave the guidance ex foreign currency and it's impossible to predict where that's going but any color, any help you can give us assuming today's spot rates? Thanks.

Yes, I guess I can give you guidance that you can try and you'd have to apply your own assumptions to what I can provide, which are facts based upon fiscal 2010. So I can tell you in -- that I already provided you with the Sterling was GBP1.60 on average over the course of fiscal 2010, and the Euro about EUR1.40. And I can tell you that the distribution of those rates over the course of the year you can look at how rates moved over the course of the year yourself. But you can see the dollar was strongest at the end of the year and at the beginning of the year and weakest in the middle, so to speak although it didn't move from a broad range from $1.54 at the end of the year to $1.63 at the point of its weakest against the Sterling. A bit more dramatic and wound up at $1.36 or so at the end of the year, and again this is the average rate for Q4, not the place where it ended as a sport. And $1.46 to $1.45 or so in the middle of the year, so that's the first set of facts.

The second set of facts may prove a bit more useful on top of that which is that we've said a number of times that roughly 50% of our revenue is derived from business outside the United States. I can tell you that, of that 50%, about 90% of it, meaning 45% of the total is non-dollar denominated. And I can tell you that of that 45 percentage points, 28 percentage points roughly. I know it sounds very exact but 28 points is based on Sterling and about 8 percentage points is based on Euros and about 9 percentage points is in all other currencies, probably heavily weighted more towards Australian dollars, maybe less so Canadian dollars and same dollars and so forth. And if you look at spot rates, the dollar against those non-Sterling non-Euro currencies, those currencies have been stronger than the dollar so they work in the opposite direction. They tend to provide a benefit from an exchange perspective as we sit. So if you take your own projection of what you see revenue for next year, we've given guidance of mid-single digit growth on a performance basis off of a base of $1,699,062.

And then you apply those percentages and those changes in spot rates and then make some prediction where you think spot might go over the course of the year, you'll get a rough feel for what it is on from a revenue perspective. I'll say that those dollars -- well, will give you a rough feel for it. You might overshoot it a bit but that gives you a pretty close feel for it. As I've said in the past it gets really complicated from there so I know you asked about EPS guidance and that's where it really begins to -- the equation becomes extremely complicated and I will not go into the two components of translation exchange, one is functional currency related to journals and the other is translation related to all of your revenues, whether it be journals or books but it gets real messy. I can say that functional currency makes it quite difficult because, in essence, the only offset to the positive or negative respect to functional currency. That's your billing rates for various journal licenses from year-to-year at the point that billing which doesn't bear relationship to any of the rates that I just gave you.

We have a royalty that goes against that so the net margin associated with that as it drops to the bottom line is fairly high and I can tell you that, that will be substantially different than it was in the past year is all I can say, quite frankly. So that's difficult. I think what I've said in the past about pure translation is that what's leftover from a translation perspective, if you gather the revenue piece of it and take roughly 20% of it or so, that's what remains at the bottom line. Because we're hedged to the extent of about 75% to 80% of our exposure at the top line is hedged through the P&L because of our substantial operations supporting our global business but based in Chichester, Oxford and other parts of the United Kingdom and also in Germany.

Okay, thanks, Ellis.

There are no more questions. At this time, I'd like to hand the call back over to Mr. Pesce for closing remarks.

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

Thank you, Ladies and gentlemen. This conference has concluded.