SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1995, Commission File No. 0-6311
WAVERLY, INC.
Incorporated in the State of Maryland
I. R. S. Employer Identification No. 52-0523730
351 West Camden Street, Baltimore, Maryland 21201
Telephone Number: (410) 528-4000
Indicate by check mark whether the Registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for
such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
As of September 30, 1995 there were 4,432,234 shares of the
Registrant's Common Stock outstanding.
<PAGE>
<TABLE>
Waverly, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands of dollars - except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
1995 1994 1995 1994
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net sales 33,763 32,631 107,685 95,804
Costs and expenses
Cost of sales 20,931 20,437 65,456 60,196
Selling and distribution 8,204 6,909 25,050 21,433
General and administrative 2,360 3,300 8,812 8,572
Depreciation and amortization 1,162 941 3,318 2,725
------ ------ ------- ------
Total operating expenses 32,657 31,587 102,636 92,926
Income from
continuing operations 1,106 1,044 5,049 2,878
Other income(expense)
Investment income 256 186 1,136 763
Interest expense (268) (262) (853) (862)
------- ------- ------- -------
Total other income (expense) (12) (76) 283 (99)
Income from continuing
operations before taxes and
earnings of affiliated entities 1,094 968 5,332 2,779
Income tax expense (411) (418) (1,976) (1,024)
Equity (loss) in the earnings
of affiliated entities (88) (247) 295 310
------- ------ ------- -------
Net Income 595 303 3,651 2,065
Earnings per common share
and common share equivalent $0.10 $0.06 $0.79 $0.47
Cash dividends declared
per share $0.12 $0.11 $0.35 $0.33
Average number of common
and common equivalent
shares outstanding 4,623,515 4,361,803 4,604,037 4,358,187
<FN>
See accompanying notes to the condensed consolidated financial
statements
</TABLE>
<PAGE>
<TABLE>
Waverly, Inc.
Condensed Consolidated Balance Sheets
(in thousands of dollars except per share amounts)
<CAPTION>
(unaudited) (unaudited)
Sept. 1995 December 1994 Sept. 1994
----------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $815 $9,602 $1,539
Investment in marketable
securities 9,282
Accounts receivable,
less allowance for doubtful
accounts ($658, $746 and $830
respectively) 37,180 32,821 34,032
Inventories 30,394 25,616 22,752
Prepaid expenses 2,929 1,017 2,875
Current deferred income taxes 2,226 2,744 2,999
Investment in discontinued
printing operations 1,000
------ ------- --------
Total current assets 73,544 82,082 64,197
Net property and equipment 10,192 7,056 6,785
Other noncurrent assets 37,767 33,865 29,035
-------- -------- --------
Total assets $121,503 $123,003 $100,017
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities
Line of credit borrowings $8,771 $1,160 $652
Current portion of long-term
debt 2,400 2,400 2,400
Accounts payable 14,635 13,530 9,287
Accrued expenses 4,185 7,723 4,574
Royalties payable 3,819 7,950 3,856
Unearned subscription
revenues 11,256 17,260 11,579
Income taxes payable 2,728 3,578 365
Current deferred income taxes 1,026 954 1,399
------- ------ ------
Total current liabilities 48,820 54,555 34,112
Long term debt 5,076 7,348 7,344
Unfunded pension obligation 3,436 3,058 3,077
Postretirement benefit
obligation 11,668 11,435 11,480
Deferred income taxes 3,086 1,414 774
Other liabilities 922 749 894
------- ------ ------
Total liabilities $73,008 $78,559 $57,681
Shareholders' equity
Preferred stock-500,000 shares
authorized; none issued
Common stock-$2 par value;
12,000,000 shares authorized,
4,432,234, 4,370,598 and
4,362,348 shares issued and
outstanding, respectively 8,864 8,741 8,725
Additional paid-in capital 11,568 10,595 10,440
Retained earnings 26,759 24,659 22,544
Foreign currency translation
adjustment 1,304 449 627
------ ------ ------
Total shareholders' equity 48,495 44,444 42,336
------ ------ ------
Total liabilities and
shareholders' equity $121,503 $123,003 $100,017
<FN>
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Waverly, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands of dollars)
<CAPTION>
For the nine months ended September 30, 1995 1994
------------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $3,651 $1,762
Adjustments to reconcile net income to
net cash used in operating activities
Write-down of property and equipment 83
Postretirement benefit obligation 233 225
Equity in the earnings of affiliated
entities (295) (557)
Depreciation and amortization 3,318 1,784
Deferred income taxes 2,695 (411)
Net periodic pension credit (591) (310) hange in assets and liabilities adjusting
Change in assets and liabilities adjusting
for the effect of acquisitions
Accounts receivable (3,027) 4,229
Inventories (4,687) (1,126)
Prepaid expenses (1,849) (774)
Accounts payable 499 (4,245)
Accrued expenses (3,693) (1,549)
Taxes payable (875) 143
Royalties payable (4,131) (1,683)
Unearned subscription revenues (6,539) (4,349)
Other long-term liabilities 173
-------- --------
Net cash (used in) operations (15,035) (6,861)
Cash flows from investing activities:
Proceeds from sale of discontinued
operations 1,000 2,903
Purchase of property and equipment (4,091) (652)
Acquisition of publishing properties (4,797)
Decrease (increase) in investments
in affiliated entities 414 413
Proceeds from sales of marketable
securities 10,297 7,891
Purchases of marketable securities (1,000) (4,000)
-------- -------
Net cash flows provided by
investing activities 1,823 6,555
Cash flows from financing activities:
Net borrowings (payments) under short-term
lines of credit 6,961 (1,529)
Repayment of long-term debt (2,272)
Common stock dividends paid (1,551) (959)
Proceeds from exercise of stock options 1,046 85
------- -------
Net cash flows (used in) financing activities 4,184 (2,403)
Net decrease in cash and cash equivalents (9,028) (2,709)
Effect of exchange rates on cash and cash
equivalents 241 107
Cash and cash equivalents at January 1, 9,602 5,387
------- -------
Cash and cash equivalents at September 30, $815 $2,785
<FN>
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
Waverly, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(amounts in thousands of dollars except earnings per share)
1. Condensed Consolidated Financial Statements
Waverly and its subsidiaries (the Company) are worldwide
publishers of print and electronic media in the fields of
medicine, allied health, and related disciplines. Products are
distributed worldwide and the Company has operating offices in
the United States and foreign locations.
The condensed consolidated balance sheets as of September 30,
1995 and September 30, 1994, the condensed consolidated
statements of operations for the three and nine month periods
ended September 30, 1995 and September 30, 1994, and the
condensed consolidated statements of cash flows for the nine
month periods ended September 30, 1995 and September 30, 1994
have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and changes in
cash flows at September 30, 1995 and for all periods presented
have been made.
This financial information should be read in conjunction with
the Company's annual report on Form 10-K. Certain information
and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The
results of operations for the periods ended September 30, 1995
are not necessarily indicative of the operating results for the
full year.
2. (a) Inventories
Inventories consist of the following: (in thousands of dollars)
(unaudited)
September 30, December 31,
1995 1994
------------- ------------
Finished goods $21,133 $18,996
Work-in-process 8,752 6,230
Raw materials 509 390
------- -------
$30,394 $25,616
<PAGE>
2. (b) Property and equipment (in thousands of dollars)
(unaudited)
September 30, December 31,
1995 1994
------------- ------------
Land $854 $1,193
Buildings 2,502 6,048
Office equipment, computers,
and related software 13,425 15,166
------ ------
Total, at cost 16,781 22,407
Less: accumulated depreciation 6,589 15,351
Net property and equipment $10,192 $7,056
2. (c) Other noncurrent assets (in thousands of dollars)
(unaudited)
September 30, December 31,
1995 1994
------------- ------------
Equity investment in
affiliated entities $3,076 $2,177
Goodwill 9,121 6,717
Publication agreements 14,102 13,758
Other intangible assets 1,370 1,359
Prepaid pension 5,770 5,179
Non-current deferred income taxes 3,805 3,792
Other 523 883
------- -------
Total other noncurrent assets $37,767 $33,865
3. Acquisitions:
Included in other noncurrent assets:
(a) Approximately $1.1 million of goodwill associated with the
March 31, 1995 acquisition of 100% of the stock of
Info-Med, Ltd., a Hong Kong distributor of medical books to
Southeast Asia. The Company previously owned a 20% minority interest.
(b) Approximately $1.0 million of publication rights associated
with the April 3, 1995 acquisition of the assets of
MEDISCRIPT, a leading medical test preparation series in
Germany. This acquisition was acquired by the
Company's German subsidiary, Urban & Schwarzenberg.
(c) Approximately $0.9 million of publication rights and $0.7
million of goodwill and other intangible assets
associated with the June 2, 1995 acquisition of 100% of the
stock of de'Medici Systems, Inc., a California developer and distributor
of a self-contained, computerized learning workstation used for
training personnel in health care facilities.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Waverly, Inc.
We have reviewed the accompanying condensed consolidated balance
sheet and the related condensed consolidated statements of
income and cash flows of Waverly, Inc. and its subsidiaries as
of September 30, 1995, and for the three month and nine month
periods then ended. These financial statements are the
responsibility of the company's management. The accompanying
condensed consolidated balance sheet as of December 31, 1994,
was audited by other auditors whose report dated February 22,
1995, expressed an unqualified opinion on that information.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements for them to be in conformity with generally accepted
accounting principles.
The condensed consolidated statements of income and cash flows
for the three month and nine month periods ended September 30,
1994 of Waverly, Inc. and its subsidiaries were reviewed by
other accountants whose report dated October 31, 1994, stated
that they did not express an opinion or any other form of
assurance on those statements.
COOPERS & LYBRAND L.L.P.
October 30, 1995
Baltimore, Maryland
<PAGE>
Waverly, Inc.
Part I. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three Months Ended September 30, 1995
Compared With The Three Months Ended September 30, 1994
Net Sales were $33.8 million for the three months ended
September 30, 1995 compared with $32.6 million for the three
months ended September 30, 1994, an increase of 3%.
Global book publishing revenues increased 2% due principally to
higher sales in international markets. Periodical revenues
increased 8% from the prior-year period. Electronic Media sales
were 4% below the prior-year period .
Cost of Sales was $20.9 million, or 62% of net sales, for the
three month period ending September 30,1995 compared to $20.4
million, or 63% of net sales, for the three month period ending
September 30, 1994, an increase of 2%. Profit margins were
higher in book publishing due to lower production costs .Profit
margins in periodical publishing were lower due to higher paper
prices and editorial cost. Profit margins in electronic media
were slightly lower due to lower volume and mix of products sold.
Selling and Distribution expenses were $8.2 million for the
three months ended September 30, 1995 compared to $6.9 million
for the same period last year, an increase of 19%. The increase
in expenses was greater than the corresponding increase in
revenues due to higher promotion and marketing expenses incurred
in book publishing due to a higher level of new products to be
published in future periods.
General and Administrative expenses were $2.4 million for the
three months ended September 30, 1995 compared to $3.3 million
for the three months ended September 30, 1994. Expenses
decreased from the prior year period due to lower provision for
bonuses and lower healthcare and retirement benefit charges.
Depreciation and Amortization expenses were $1.2 million for the
three months ended September 30, 1995 compared to $0.9 million
for the same period last year, an increase of 33%.
The increase in charges is due to amortization charges for
acquisitions made in Germany, Asia and the United States.
Other Income(Expense) was ( $12,000 ) for the three months ended
September 30, 1995 compared to ( $76,000) for the three months
ended September 30, 1994. Interest expense on borrowings was
equal to last year while miscellaneous income increased over the
prior year.
Equity in Earnings of Affiliated Entities was a loss of $88,000
for the current period compared to a loss $247,000 for the same
period last year. During the prior-year period the Company
incurred substantial losses from a 45% owned company in Germany
that was sold in the fourth quarter of 1994.
Income Tax Provision was $411,000 or 38% of pre-tax income for
the three month period ending September 30, 1995 compared to
$418,000 or 43% of pre-tax income for the three month period
ending September 30, 1994. The effective tax rate was lower in
the current period due to a lower proportion of German based revenues
in 1995 which is taxed at a higher rate as well as
an expected lower effective tax rate on U.S. based income.
Net Income was $595,000 for the current period compared to
$303,000 for the comparable period last year, an increase of
96%. Income increased because of higher revenues, lower general
and administrative expenses and the absence of losses from a
minority-owned entity in Germany which was sold in the fourth
quarter of 1994.
<PAGE>
Waverly, Inc.
Results of Operations: Nine Months Ended September 30,
1995 Compared With The Nine Months Ended September 30, 1994
Net Sales for the nine months ended September 30, 1995 were
$107.7 million compared to $95.8 million for the nine months
ended September 30, 1994, an increase of 12%. Book publishing revenues
rose 17% in the current period, with international sales up 19% and domestic
book sales 15% over the prior year. New products introduced over
the past twelve months have provided added volume. Periodical
revenues were 4% over the prior-year period. New journal
publications and rate increases have boosted revenues.
Circulation and advertising remain relatively unchanged from the
prior year. Electronic Media revenues were 23% above prior year
sales due to new products and sustained sales of backlist videos
and software.
Cost of Sales was $65.5 million , or 61% of sales, in the
current period compared to $60.2 million , or 63% of sales for
the same period last year, an increase of 9%. Gross margin in
book publishing improved due to lower unit manufacturing costs
in book production. Gross margin in periodical publishing
declined due to higher material and editorial costs. Gross
margin in electronic publishing remained essentially unchanged.
Selling and Distribution expenses were $25.1 million, or 23 % of
sales , for the nine months ended September 30, 1995 compared to
$21.4 million, or 22% of sales , for the comparable period last
year, an increase of 17%. To date expenses have increased more
than the corresponding increase in revenue due to the
anticipated higher volume of book publishing revenues expected
over the ensuing months.
General and Administrative expenses were $8.8 million for the
current period, or 8% of sales, compared to $8.6 million, or 9% of sales,
for the same period last year. Expenses have declined as a percent of sales
due to reduced personnel and lower charges for healthcare and
retirement benefits.
Depreciation and Amortization expenses were $3.3 million for
the current period compared to $2.7 million for the same period
last year, an increase of 22%. The increase in charges is due
principally from recent acquisitions in Germany, Asia and the
United States.
Other Income( Expense ) was income of $283,000 for the nine
months ended September 30, 1995 compared to a loss of $99,000
for the same period last year. Interest expense was
approximately equal to last year. Miscellaneous income was
higher than last year due to gains on foreign transaction settlements
and higher fees earned from international management services.
Equity (Loss) in Earnings of Affiliated Entities was $295,000 in
the current period compared to $310,000 for the same period last
year.
Income Tax Expense for the current period is $1,976,000 or 37%
of pretax income compared to $1,024,000 or 37% of pre-tax income in
the prior-year period.
Net Income(Loss) for the nine months ended September 30, 1995 is
$3.7 million compared to $2.1 million for the same period last year,
an increase of 77%. The significant increase in earnings comes from a
greater volume of book publishing products sold throughout the world and
manufacturing efficiencies in book production costs.
<PAGE>
Waverly, Inc.
Liquidity and Capital Resources
Total assets were $121.5 million at September 30, 1995 compared
to $123.0 million at December 31, 1994 and $ 100.0 million at
September 30, 1994. The increase in assets from one year ago is
a result of acquisitions completed during the past year and
additional product published leading to higher levels of
receivables and inventories. Working capital ratio is 1.5 to 1
at the end of the current period compared to 1.9 to 1 at the end
of the same period last year. The decline in the ratio is due to
the investments of $5.0 million for acquisitions in Asia,
Germany and United States.
At September 30, 1995 the Company carried a net borrowing
position [ defined as cash less short term and long term
borrowings ] of $15.4 million compared with a net borrowing
position of $8.9 million at September 30, 1994 and a net cash position of
$8.0 million at December 31, 1994. The drop in net cash since
the start of the year is due to the (1) normal seasonal use of
cash received at the beginning of the year for annual renewal
subscriptions, (2) the build up of receivables from the annual
fall stocking order from medical wholesalers which is settled a
the end of October of each year, (3) increase in inventories
from expansion of the book publishing program, (4) acquisitions
of $5.0 million for publishing properties, (5) capital spending
of $2.1 million for new computers and software for a newly
installed customer fulfillment system and (6) leasehold
improvements and furnishings of $1.6 million for new corporate
headquarters.
The Company's long term debt is $5.1 million or 10% of
shareholders' equity at September 30, 1995 compared with $7.3
million or 17% of shareholders' equity at September 30, 1994.
The Company currently pays a dividend of $0.12 per share per
quarter, or at an annual rate of $0.48 per share.
At September 30, 1995 the Company recorded $6.0 million as a
deferred U.S. based tax asset. This asset is a result of the recognition
in prior years of postretirement benefit obligations, reserves for write-off
of assets and recording of expense reserves related to the sale of
the Printing division, reserves for expenses for relocation of
corporate offices and publishing restructuring, and reserves for
future inventory deductions. The Company expects the deferred
tax asset to be realized through future profitable operations,
based on the long term earnings record and therefore has
recorded the asset free of any valuation allowance.
The Company expects the liquidity position to improve over the
ensuing months due to the expanded number of new books to be introduced
over the next three to six months.
The Company continues to search for investments in publishing
properties and expects to fund such acquisitions through
internally generated cash flow.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
No Change
Item 2. Changes in Securities
No change
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits required by Item 601
of Regulation S-K are filed herewith:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 15 - Letter from Coopers & Lybrand L.L.P.,
independent accountants, re unaudited
financial information.
(b) The reports on Form 8K for the quarter ended September
30, 1995:
Date Filed: July 27, 1995
Items Reported: Item 4 - Changes in Registrant's Certifying
Accountant
All other items are omitted because they are not applicable or
the answers are none.
<PAGE>
Waverly, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this statement is being signed by a duly authorized
officer of the Registrant and in the capacity as the principal
financial officer.
WAVERLY, INC.
Date: November 10, 1995 E. Philip Hanlon
Vice President, Finance
<TABLE>
Waverly, Inc.
Computation of Earnings Per Share
(in thousands of dollars - except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Earnings: $595 $303 $3,651 $2,065
Primary earnings $595 $303 $3,651 $2,065
Fully diluted earnings $595 $303 $3,651 $2,065
Weighted average shares
outstanding 4,431 4,362 4,419 4,358
Dilutive common stock
equivalents for primary
earnings per share 193 185
----- ----- ----- -----
Weighted average shares
and common equivalent
shares outstanding for
primary earnings per
share 4,624 4,362 4,604 4,358
Additional equivalent
shares assuming full
dilution 6 13
----- ----- ----- -----
Weighted average shares
and common equivalent
shares for fully diluted
earnings per share 4,630 4,362 4,617 4,358
----- ----- ----- -----
Earnings per share
Primary $0.10 $0.06 $0.79 $0.47
Fully diluted (1) $0.10 $0.06 $0.79 $0.47
<FN>
(1) Not presented on the Consolidated Statements of Income because fully
diluted earnings per share had a differential less than 3% of primary
earnings per share.
</TABLE>
November 10, 1995
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Dear Sirs:
We are aware that Waverly, Inc. has incorporated by reference
our report dated October 30, 1995 (issued pursuant to the
provisions of Statement on Auditing Standards No. 71) in the
Prospectus constituting part of its Registration Statements on
Forms S-8 (Numbers 33-28502 and 33-41925). We are also aware
of our responsibilities under the Securities Act of 1933.
Yours very truly,
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 815
<SECURITIES> 0
<RECEIVABLES> 37838
<ALLOWANCES> 658
<INVENTORY> 30394
<CURRENT-ASSETS> 73544
<PP&E> 16781
<DEPRECIATION> 6589
<TOTAL-ASSETS> 121503
<CURRENT-LIABILITIES> 48820
<BONDS> 0
<COMMON> 8864
0
0
<OTHER-SE> 11568
<TOTAL-LIABILITY-AND-EQUITY> 121503
<SALES> 107685
<TOTAL-REVENUES> 109116
<CGS> 65456
<TOTAL-COSTS> 102636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 853
<INCOME-PRETAX> 5627
<INCOME-TAX> 1976
<INCOME-CONTINUING> 3651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3651
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
