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Executives

William J. Pesce - President, Chief Executive Officer, Director

Ellis E. Cousens - Chief Financial and Operations Officer, Executive Vice President

Analysts

David Lewis - J.P. Morgan

[Alan Zuclare - First Manhattan]

[Auvie Steiner] - J.P. Morgan

John Wiley & Sons, Inc. (JW.A) F1Q09 Earnings Call September 9, 2008 2:30 PM ET

Operator

Welcome to the John Wiley & Sons conference call. (Operator Instructions)

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.

William J. Pesce

I’m with Ellis Cousens. I’ll provide an overview. Then we will respond to your questions.

Fiscal year 2009 began as expected. STMS and higher education reported year-on-year revenue increases of 6% including favorable foreign exchange of 1% to 2%. As expected professional trade was down from last year’s strong first quarter by 3% or 4% excluding the favorable effect of foreign exchange. Based on these results, leading indicators and market conditions we continue to expect fiscal year 2009 revenue growth to be in the mid single digit and EPS growth to be approximately 20% excluding onetime tax benefits. Revenue of $402 million increased 3% from prior year or 2% excluding favorable foreign exchange. EPS of $0.50 per share increased 19% excluding a onetime tax benefit that was accretive to EPS in the first quarter of last year by $0.26 per share. The EPS increase was principally due to lower debt financing costs and an insurance settlement. Foreign exchange had an unfavorable effect on EPS of $0.03 per share.

We achieved an important milestone in June by migrating journal content, customers and access licenses from Blackwell’s Synergy platform to Wiley InterScience. The migration included approximately 29,000 customers, over 2 million licenses, and nearly 2 million journal articles. Beyond the online platform major integration activities are tracking to plan. We expect to complete substantially all Blackwell related projects by fiscal year end.

We made significant progress implementing a new global organizational structure across Wiley’s three core businesses to leverage our content, services and capabilities around the world. More specifically, the goals we hope to achieve are to improve the deployment of human and financial resources, expand the sphere of influence of our colleagues by leveraging their capabilities beyond geographic boundaries, provide professional growth and development opportunities, and serve our customers, authors and partners better. As a result of this new structure the company is reporting global results for its three core businesses. Blackwell is included in STMS; therefore it is no longer reported as a separate segment. Prior year results have been restated for comparative purposes.

Gross profit as a percent of revenue of 68.3% was better than prior year. Direct operating expenses for the three core businesses were only 2% higher than last year excluding the unfavorable effect of foreign exchange. Shared services expenses increased by 10% excluding unfavorable foreign exchange. Adjusted for foreign exchange and Blackwell-related net integration costs, shared services expenses increased 7% over last year’s first quarter.

Free cash flow was $29 million better than prior year reflecting the combined effect of higher cash collections related to institutional licenses, improved trade receivables, the timing of author and vendor payments, and a $12 million income tax refund. Total debt decreased by approximately $200 million from a year ago while net debt was $134 million lower.

In June we conducted a town hall meeting for Hoboken based colleagues and representatives from our distribution and customer service center in Somerset, New Jersey. On a scale of 1 strongly disagree to 5 strongly agree colleagues provided a rating of 4.2 on six effectiveness criteria. Specific comments from colleagues include: “Overall I thought it was an inspiring meeting and made me feel very lucky to be working for Wiley.” Another colleague wrote, “I have been at companies that do not bother to have such a meeting so I know what it is like on the other side. The meeting really makes employees feel valued and part of the company vision.” A recent addition to the Wiley team commented, “Great opportunity for this new employee to get a clear understanding of how Wiley really walks the talk and how Wiley is different than other companies that simply talk.”

I’d like to provide some highlights regarding our core businesses. Global STMS revenue for the first quarter increased by 6% to $240 million or 5% excluding favorable foreign exchange. The year-on-year growth was driven by books and journals. Also contributing to the increase was a $6 million acquisition accounting adjustment that reduced revenue in the first quarter of the prior year. Book revenue was particularly strong in Asia, Australia and Canada reflecting the combined effect of Wiley’s sales and marketing capabilities and Blackwell’s book publishing programs. Direct contribution to profit advanced 15% to $97 million or 16% excluding the unfavorable effect of foreign exchange. The increase reflected top line results and the collection of a 2003 journal agent bankruptcy settlement of $2 million.

During the quarter we saw new contracts with various societies to publish 17 new journals, renewed or extended contracts to publish nine journals, and lost a contract to publish one title. Key signings include one of the oldest journals in China. Last but certainly not least, Wiley has been selected by a number of societies to launch new journals.

More than 900 of Wiley’s 1,400 journals are included in the Thompson ISI 2007 Journal Citation Reports. Many of our journals showed healthy increases in impact factors which reflects the frequency that peer review journals are cited by researchers. Journals published by Wiley are ranked number one in 31 categories.

STMS announced the winners of this year’s Young Chemist Award at the opening ceremony at the 26th Chinese Chemical Congress. The first Polymer International IUPAC Award for Creativity and Applied Polymer Science or Polymer Technology was awarded at the World Polymer Congress in Taiwan. This new award is for young researchers.

Global PT revenue for the first quarter was $102 million, a 3% decline from last year’s strong first quarter or 4% decrease excluding favorable foreign exchange. First quarter revenue exceeded our expectations. A revenue decrease in the US including the effect of higher sales returns offset solid performances in Asia, Continental Europe, the Middle East and Africa. The business and technology publishing programs as well as online advertising and services led by Frommers.com and whatsonwhen.com exhibited strength. Also affecting the comparison to last year was the termination of a publishing agreement in the culinary hospitality program.

Direct contribution to profit was $19 million compared to $26 million for the first quarter of last year reflecting the top line results and higher operating expenses. Expense growth reflected increases in advertising and marketing in anticipation of a strong front list as well as employment costs.

Highlights for the quarter include the continued growth of Fromers and the launch of private label travel destination site for KLM Airlines with whatsonwhen.com providing local event and city guide content for 85 global destinations serviced by KLM. Additional PT generated a 12% increase in the number of book club, translation and digital rights contracts signed compared to the same quarter in the previous year.

Notable launches include a custom travel guide for MasterCard entitled Priceless China which was distributed prior to the Olympics and two custom guides printed for the US Olympic Committee. Business entitles include Accounting for Dummies Fourth Edition by John Tracy and The Mary Kay Way: Timeless Principles from America’s Greatest Woman Entrepreneur by Mary Kay Ash. Leadership books include Transparency: How Leaders Create a Culture of Candor by Warren Bennis, Daniel Goleman and James O’Toole and The Five Temptations of a CEO 10th Anniversary Edition by best-selling author Patrick Lencioni. In education Wiley released Stand for the Best, the inspirational story of Tom Block who resigned from his CEO position at H&R Block to teach mathematics in an inner city middle school.

During the quarter we signed a multi-book deal with Jack Vogel one of our best-selling authors on investing. We also signed a two-book deal with the Goldman Sachs Private Wealth Group and a four-book agreement with the American Society for the Prevention of Cruelty to Animals targeting children in the 9 to 12 age category. Jossey-Bass signed a two-book deal with Warren Bennis, the leadership guru and best-selling author. In education we signed books as part of separate new partnerships with Teach for America and the National Educational Association.

Global higher education revenue increased 6% to $59 million or 4% excluding favorable foreign exchange. Higher education revenue excluding the Australian secondary school business grew 7%. The results were driven by the continued success of Wiley plus revenue from acquired titles and organic growth in science, mathematics, engineering and the social sciences. Markets around the world contributed to the growth particularly North America, Asia and Australia. Direct contribution to profit increased 5% to $19 million reflecting top line results and improved gross margin.

Wiley Plus continues to build momentum around the world as reflected in the 43% growth in billings and the number of registered users jumping 55% over the same quarter of last year. Wiley Plus revenue is deferred and recognized over the course of one or two semesters. Given the increased penetration of Wiley Plus, approximately $2 million of additional revenue was deferred this quarter compared to the first quarter of last year. Excluding foreign exchange, the science program was up 8% over prior year, mathematics and statistics increased by 14%, business and accounting were flat with prior year reflecting some softness for accounting titles which strengthened in August. Social sciences performed well against prior year, engineering and computer science were up 19% over last year.

We acquired textbooks and learning materials from [Sungage]s Learning which complements our programs in business and modern languages. A key part of the transaction is Contemporary Business 12th Edition by Louis E. Boone and David E. Kurtz. This market-leading textbook provides us with a strong position in the large Introduction to Business course. Annual revenue for the acquisition of the titles we acquired is nearly $7 million.

Earlier in the year we acquired a list of mathematics and statistics titles from Key College Publishing the higher education business of California-based Key Curriculum Press. The acquisition brings to Wiley award-winning authors and educators and textbooks that will strengthen our current offerings and provide opportunities for growth. Annual revenue is more than $1 million.

In July Congress approved the Higher Education Reauthorization and College Opportunity Act which includes provisions requiring publishers to disclose certain course material information to faculty and offer unbundled course materials. A new government accountability office study will be conducted in 2013 to review the costs and benefits of the textbook related provisions. In addition, the Act provides funding for up to 10 institutions to experiment with textbook rental programs.

In closing, while the sluggish economy and volatile financial markets have certainly had an adverse effect on some of our markets, we started the year as expected. The global organizational structure is in place and we are beginning to realize the anticipated benefits. The Blackwell integration continues and is on track to be essentially completed by the end of the fiscal year. Our STMS colleagues continue to form new relationships with prestigious societies. While renewing existing agreements PT is outperforming its competitors. And Wiley Plus is performing very well. While it’s certainly early in the year, so far so good. During the balance of this fiscal year we expect to benefit from strong front lists in professional trade and higher education, revenue from newly signed journals, publication schedules and some recovery in corporate sales in STMS, the continued success of Wiley Plus in higher education, and cost savings resulting from the Blackwell integration. As stated previously, we reaffirm our guidance for fiscal year 2009.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from David Lewis - J.P. Morgan.

David Lewis - J.P. Morgan

I was wondering if you could just break out operating costs constant currency, I’m not sure if I missed it or not. I know that you mentioned the Blackwell integration costs. And related to that, could you just give a little more detail about the integration costs and how you think they’re going to be broken up through the quarter and through the first half and the second half of the fiscal year?

Ellis E. Cousens

In terms of the operating costs and administrative expenses, they’re up as you see from the earnings release about 6.8%. That’s including the effects of exchange. There was just under $4 million of unfavorable foreign exchange translation so net of that it was just under 5%, 4.9%.

In terms of the effect of the integration, there’s about net $2 million of expense in the quarter. So there were some savings and some additional expense and net of that was about $2 million. We haven’t provided specific guidance to your question about how it lays out over the quarters. What we’ve said thus far and about all I’m capable of saying right now quite frankly until we’re a little bit further into this, to be that specific is that by the time we get to the end of the year as I’ve noted previously, we’ll have over the course of the year positive integration savings net of all costs in the year and we will be completed substantially with all of the acquisition integration related activities by the time we exit the year. That’s as much as we’re in a position to say now. We previously reaffirmed that we’re on target to meet our overall guidance with respect to total cost savings when we’re completed with the acquisition.

David Lewis - J.P. Morgan

The revenue guidance, the mid-single digits that you’ve given, is that constant currency and does that exclude acquisitions? I mean is that a pure organic number or how should we think about that?

Ellis E. Cousens

It’s the reported revenue that we’ll provide at the end of the year. So it includes the effect of foreign exchange translation positive or negative and the addition of any small acquisitions such as the two that Will outlined with respect to [Sungage], a small acquisition, and Key Press.

Operator

Our next question comes from David Lewis - J.P. Morgan.

David Lewis - J.P. Morgan

Ellis, can you give us an update on the tax rate? I know this is a regular question.

Ellis E. Cousens

It’s a good question. As you can tell there’s been quite a bit of volatility over the last few years. We’re anticipating the full-year rate to be about 25% to 27%. That includes what we’ve seen thus far in the first quarter and sort of the normal tax rate over the balance of the year. As we noted last year, there were tax law changes in both the UK and Germany that affected the full year last year in Germany and beginning this year in the UK. So depending upon where our earnings and profits are relative to the US, Germany and the UK and other jurisdictions, that’s why I provide a range of 25% to 27%. That’s about as tight as I can get quite frankly given the difference in tax rates, particularly with the US being the highest tax rate and Germany and the UK being substantially lower.

David Lewis - J.P. Morgan

Will, can you elaborate a little bit more on the journal gains which continue to reflect one of the reasons for buying the acquisition itself? Is that purely taking market share?

William J. Pesce

Yes. When I mentioned that we were able to sign new journal agreements, those are ones that neither Wiley nor Blackwell had before. So I broke out those that are entirely new to the combined entity if you will. As you know there are many that are up for renewal in any given year so I mentioned the successful renewal of those. And by the way, on renewals they may very well represent contracts that are expiring within the year but sometimes we’ll talk to our society partners about renewing early and extending the agreement. In fact, increasingly we’ve been doing that as well. The one that we lost is one that obviously we were publishing before that a competitor took away from us. As I stated in previous calls, from where I sit one of the most important early indicators of success if you will in terms of bringing these two companies together is to continue to have very healthy collaborative relationships with these societies. We are well into the integration period and we’ve been able to not only retain many of those relationships but add to them with a very, very small number of defections. We won’t take that for granted. We’re very pleased about that. And we think as we move through the final stages of the integration and ultimately launch a new online platform with further functionality enhancements and other things, we’ll be in a really very, very strong position to continue to sign on additional agreements as well as extend the ones that we already have. I must say again from my perspective, that’s a very, very positive early indicator. You don’t see obviously the benefits of that in our revenue or earnings right now just because you signed the agreement. The renewals are the renewals but the new ones usually take a while to get rolling. It’s not immediate once you sign the contract because you have to go through a transition period. That’s a future indicator if you will.

David Lewis - J.P. Morgan

Will, can you also elaborate on the front list in P&T?

William J. Pesce

About the only thing I can say about that is I’ve been here for 18 years now and I’ve worked with my colleagues in PT over that period of time, obviously a lot more closely in my role as CEO over the last 10 years, and there’s genuine enthusiasm for the depth and quality of this front list. There’s no science to that, right? I mean, it starts with a process of identifying the right authors in the right markets and then getting the manuscript in and then all the sales and marketing and publicity efforts. But again the early indicators, we’re talking about the fall front list, are really quite good. We feel that it’s a deep list. We are publishing these books in a tough market.

What we all know or those of you who have followed the company, if you had to pick a part of Wiley that is somewhat more susceptible if you will to changes in the economic cycle than other parts of our business, it would be our professional and trade business. And that’s why I say that trying to predict exactly how that list will do is never easy but it is a strong list. Even though it’s in a tough market we feel pretty good about it. And it’s also why I kept saying as expected in the first quarter, I realize year-on-year declines in any quarter do not look good, but we were not at all surprised by that based on what we experienced the first quarter of last fiscal year.

So there was a tough kind of comparison period there knowing what we knew coming out of the fourth quarter of last fiscal year in terms of market conditions and knowing what we know about the balance of the year in terms of the front list and hopefully market conditions improving a bit. We’re not expecting everything to get suddenly better but we do expect that the market will improve as we get deeper into the fiscal year. So you put that all together and we certainly expect our PT business to perform much better in the balance of the year than it did in the first quarter.

David Lewis - J.P. Morgan

Anything notable with Wiley Plus? I know it’s not a huge contributor though it’s showing tremendous growth than higher ed, but is it better distribution or is there something behind that growth that sticks out?

William J. Pesce

Yes. I think a couple of things are happening here. One is I want to be clear that the growth is happening around the world. Obviously the greatest penetration is in the United States; however we have successful adoptions if you will of Wiley Plus in many different parts of the world and the usage is increasing which means it’s not only that students are gaining access to it, they are actually using it. And I don’t mean to be glib about that. One of the problems in this business in the past is even if a student bought a textbook you really never knew how they were using it. You kind of make assumptions about that but you never really knew. With Wiley Plus we have very direct feedback and usage data which indicates to us that this is a very robust system that’s creating quite a bit of satisfaction among both professors and students. We are very bullish about Wiley Plus. We feel good about the fact that it’s penetrating markets around the world. We feel good about the feedback we’re getting from our customers. And we think this is admittedly an evolution, not a revolution; it’s been taking some time; it’ll continue to take more time. But I think what we’re finding is that the markets we’re serving in the States and abroad are beginning to accept more and more access to electronic materials for the education market. As I’ve said to many of you in the past, it’s not about the technology. It’s about getting the human beings, professors and students, to use the technology, see the benefit of it and then adopt it more broadly. And we’re beginning to see more of that with each passing day.

David Lewis - J.P. Morgan

Did you guys split out interest expense in the Interest Expense and Other net line or could you do that?

Ellis E. Cousens

Yes, I can do that Dave. What we have is Other Income and Expense net you have $7.9 million. Interest expense was actually about $13 million. There was interest income of about $800,000. And then we have the life insurance proceeds with the delta to get you to the $7.9 million. So that will give you the answer. And then year-on-year the comparison is we’re about something like $4.5 million lower in interest expense than the prior year first quarter and I’d say about half of it came from lower interest rates and about half of it came from lower principal outstanding on average.

David Lewis - J.P. Morgan

What are you guys modeling for fx this year? You’ve talked about it on the top line but on the operating line. Or are you changing the business to the extent that you can to minimize that impact of the strengthening dollar?

Ellis E. Cousens

In terms of foreign exchange translation effects on the business, as the dollar weakens it’s been positive on the top line, negative on expense. We have a lot of expense denominated particularly in Sterling but also in other currencies outside of dollars. Typically on a net basis depending on how quickly the dollar strengthens or weakens, by the time you get down to net income it’s been relatively neutral. It was negative in this first quarter. I think it’s because of principally sort of the Euro holding up, Sterling weakening somewhat quickly. So kind of net net when you get to cash flow at the end of the day, which is what I look to, we’re pretty much self hedged within the context of our current operations and business given the nature of our journals program globally and our book programs globally and where our direct expenses, operating expenses are distributed around the world. So that’s how I kind of look at it. The top line will be affected and have some volatility related to exchange movements particularly against Sterling and the Euro, and the same holds true for expense but they typically net one another out. So by the time you get to the bottom line, it’s relatively close plus or minus small change. Not enough to us going out and doing some significant wide-reaching far-ranging foreign exchange management program.

Operator

Our next question comes from [Alan Zuclare - First Manhattan].

[Alan Zuclare - First Manhattan]

Just two totally unrelated questions. One, and I may have missed this because I’m trying to multi-task but my brain doesn’t always work, the deferred revenue year-over-year went down very sharply. Was that just timing or did something change?

Ellis E. Cousens

Essentially that’s the effect of the journals earnings over the course of the quarter. Principally what sits in deferred revenue, there is Wiley Plus revenue. That’s relatively small as part of the total. The principal change reflects essentially the growth in the journal subscription business and the earnings through the journals program. It’s the journals licenses that are set up in there.

[Alan Zuclare - First Manhattan]

Does that mean that the journal licenses were down year-over-year? I’m not sure what to read from that?

Ellis E. Cousens

If you look year-over-year, it’s down. From year end is where the earnings -

[Alan Zuclare - First Manhattan]

I don’t know whether this is something that moves quarter-by-quarter. It just stuck out and given that you consolidated Blackwell, I wondered if there was something going on that I just wanted to be clear about.

Ellis E. Cousens

No. On a year-over-year basis the subscription revenue was up, right? So that’s a positive indicator. That’s because the rate of subscriptions are increasing. So that’s a positive signal. So I’m not sure of your question beyond that.

[Alan Zuclare - First Manhattan]

On the balance sheet you show the deferred revenues down significantly, so I just wanted to understand why that would be. That’s my question if I wasn’t clear. Sequentially they’re up. I’m just saying year-over-year they’re down. If it’s just timing, that’s fine. It just seemed like a fairly significant number unless I’m not reading it right.

Ellis E. Cousens

Are you talking about year-over-year meaning April to July or July to July? Because year-over-year they’re up.

[Alan Zuclare - First Manhattan]

As I said, I may be reading this wrong. I’m looking at your release so perhaps I didn’t get a good copy of it and I apologize. It looked like deferred revenue year-over-year was -

Ellis E. Cousens

Year-over-year July 2007 it says $208,510; July 2008 is $225,173. It’s down from April.

William J. Pesce

The normal flow of the business. But year-on-year revenues are up by about $17 million.

[Alan Zuclare - First Manhattan]

And the $315 number?

William J. Pesce

That’s the year end.

Ellis E. Cousens

April.

[Alan Zuclare - First Manhattan]

I’m sorry. I just wasn’t able to see the column. So that’s seasonal then.

Ellis E. Cousens

Right.

William J. Pesce

The normal flow of the journals business. These are calendar year subscriptions.

[Alan Zuclare - First Manhattan]

My apologies.

William J. Pesce

I was just confused. I wasn’t quite sure what you were looking at.

[Alan Zuclare - First Manhattan]

No. You’re not confused. I’m confused. That’s okay. What else is new? The other question is, is there a schedule for the debt balances and at what point do you switch over to perhaps going back to a share repurchase program? Is that even worth talking about or is that out in the future?

William J. Pesce

It’s out in the future but it’s not that far out in the future. It depends on again how it is we’ll devote excess cash, free cash flows to either of three things. Obviously in free cash flow it means that we’ve already satisfied our normal operating cash requirements of product development spending, operating cost growth, and capital spending. The excess cash beyond that will be directed towards acquisitions, debt pay down, share repurchase and common dividends. As you know in the past six quarters we’ve been dedicating most of, not all, we’ve made some small acquisitions, most of that free cash flow for paying down debt. We’ll continue to do that pretty much in that mix and paying income and dividends. So we’re not back to share repurchase. We do still have an open share repurchase program but our greatest option now is debt reduction and opportunistic acquisitions as they come along of reasonable size, whatever that means, and paying dividends. There will come a time hopefully in the next let’s say couple of years, within the next couple of years, not necessarily in a couple of years, but within the next couple of years where our debt is low enough that we would feel in the absence of sufficient of opportunistic acquisitions coming along that it might be time to begin to relook at that prioritization and move some of that towards share repurchase.

Operator

Our next question comes from [Auvie Steiner] - J.P. Morgan.

[Auvie Steiner] - J.P. Morgan

If some of this was discussed already, I apologize as well. If you could talk about the higher education landscape and what it looks like this year from your perspective in terms of enrollment and given the kind of economic and student loan backdrop? Secondly, can you comment on maybe what the pricing environment looks like on the higher ed side, whether there is an ability to increase prices? And thirdly, maybe if you can talk about piracy a little bit which is slowly starting to perk up as a topic at least on the physical textbook side?

William J. Pesce

The environment for higher ed in terms of demographics, enrollment patterns, the areas in which we publish in is pretty good. In the past at least when there have been tough economic cycles, it’s actually been considered a positive for higher ed for a whole host of reasons. We’re not seeing a material difference from that pattern this time around. So I would say overall on the enrollment front, that’s pretty good. There’s been a lot of talk about student loans and difficulty gaining access to student loans, and I suspect as a matter of degree if you will in this environment it has been a bit more difficult. My experience frankly at Wiley as well as the work I do on a volunteer basis for some higher ed institutions is that those places are able to get loans for their students. It may take a little bit more time but that’s certainly not having a negative effect on enrollments.

In terms of the pricing environment, I’ve been connected to the higher ed business for my entire career at Wiley, which is 18 years, and it’s always been a somewhat price sensitive market and that’s been probably as price sensitive as ever in the last three to four years. I’ve often said and I feel very strongly about this: It’s really never about price alone. It’s all price relative to value. And what I mean by that is there are certain areas that we publish and there are books that may be on the higher end of the price range where students are continuing to buy them and they’re continuing to use them and they then retain them after the course because frankly they have no chance to get through the course without it. So there’s value there. On the other hand, there could be some books that are half the price of some of the ones that I just referred to and they may not do well because either the professor does not integrate the textbook into the course or the student doesn’t see the value. So it’s always relative to the value that you’re delivering. But I think it is fair to say it’s always been price sensitive and even more so over the last three to four years.

And part of that is linked to what you mentioned in terms of piracy. In the past, the metaphor I use is a leak in the boat. The leak in the boat in the past has been used books and then unauthorized copies of books where literally students or groups of students would go buy the book, go to a copy machine, make a copy, return the book. We’ve been dealing with that as I said for really a very long time. With a whole host of online sellers as well as this growing issue of re-importation, that being students from other parts of the world who have access to books at lower prices than in some other parts of the world, re-importing them back in and selling them for a profit. I think the Internet has certainly enabled that to happen more easily than it would have in the past.

That is not a new phenomenon for us to deal with but it certainly has accelerated over the last three years or so. The way we are combating that is primarily with products and services like Wiley Plus. The reason call after call after call after call, I keep emphasizing the performance of Wiley Plus and as I’ve said before I do think it will be an important part of our future. I’m not suggesting that students will not gain access to print on paper textbooks in the future but I do think what you’re seeing is slow admittedly but steady acceptance of online delivery of instructional materials. We’re genuinely excited about that. We think ultimately those kinds of products and services are robust if you will in terms of the used book market, in terms of price value, in terms of piracy, just about every different way you can think about it.

And for those of you who may be new to the call, I just want to say in terms of the economics of that business and my emphasis here on price value is that what we’re beginning to prove is that you can sell a service and I call it a service because it’s more than words on a screen with Wiley Plus that we can sell it for less than a textbook package, the traditional textbook package. And we really do believe that we can generate more value for the student, not only because the price is lower but because of the interactivity, the ability to customize material for the student’s particular learning needs, the ability to provide resources to professors for assessment, and so on and so forth. So we’re very excited about it. It’s a lower priced product which is again robust in this market but you also get the benefit for shareholders and the company like ours, lower working capital, higher cash return on investment because you don’t have the inventory sitting in the warehouse and you don’t have the returns that you obviously have in a print-on-paper textbook business.

So it is a tough environment for sure. I would have to say certainly in recent months we’re seeing some uptick in that market that a year ago we didn’t experience. The student loan situation I don’t think is as bad as some people wrote about. Piracy is a growing effect but the strategies against that having to do with technology related products I think is beginning to work.

Operator

There are no further questions at this time. I’d like to turn the conference back over to you Mr. Pesce for any additional or closing remarks.

William J. Pesce

Thank you very much for your continued interest and support. We look forward to speaking with you again in December when we will report our second quarter results. Thank you very much.

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