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 June 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 June 30, 1995 there were 4,427,833 shares of the
Registrant's Common Stock outstanding.
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<TABLE>
Waverly, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands of dollars - except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 39,220 34,403 73,922 63,173
Costs and expenses
Cost of sales 22,820 21,220 44,525 39,759
Selling and distribution 8,748 7,651 16,846 14,524
General and administrative 3,358 2,885 6,452 5,272
Depreciation and amortization 1,090 925 2,156 1,784
------ ------ ------ ------
Total operating expenses 36,016 32,681 69,979 61,339
Income from
continuing operations 3,204 1,722 3,943 1,834
Other income (expense)
Investment income 278 247 880 577
Interest expense (310) (291) (585) (600)
------- ------- ------ ------
Total other income (expense) (32) (44) 295 (23)
Income from continuing
operations before taxes and
earnings of affiliated entities 3,172 1,678 4,238 1,811
Income tax (expense) (1,060) (450) (1,565) (606)
Equity (loss) in the earnings
of affiliated entities (18) 14 383 557
------- ------ ------- ------
Net Income 2,094 1,242 3,056 1,762
Earnings per share:
Net Income $0.47 $0.29 $0.69 $0.41
Cash dividends declared
per share $0.12 $0.11 $0.23 $0.22
Weighted average shares
outstanding 4,425,337 4,358,077 4,412,277 4,356,349
<FN>
See accompanying notes to the condensed consolidated financial
statements
</TABLE>
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<TABLE>
Waverly, Inc.
Condensed Consolidated Balance Sheets
(in thousands of dollars except per share amounts)
<CAPTION>
(unaudited) (unaudited)
June 1995 December 1994 June 1994
----------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $3,707 $9,602 $2,785
Investment in marketable
securities 9,282 7,259
Accounts receivable,
less allowance for doubtful
accounts ($670, $746 and $847
respectively) 36,129 32,821 28,858
Inventories 28,454 25,616 24,611
Prepaid expenses 2,657 1,017 2,925
Current deferred income taxes 3,190 2,744 2,999
Investment in discontinued
printing operations 1,000
------ ------ ------
Total current assets 74,137 82,082 69,437
Net property and equipment 9,842 7,056 6,998
Other noncurrent assets 38,331 33,865 29,137
-------- -------- --------
Total assets $122,310 $123,003 $105,572
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities
Line of credit borrowings $1,905 $1,160
Current portion of long-term
debt 2,400 2,400 2,400
Accounts payable 11,889 13,530 10,223
Accrued expenses 6,422 7,723 5,771
Royalties payable 5,424 7,950 5,049
Unearned subscription
revenues 15,424 17,260 14,548
Income taxes payable 2,947 3,578 155
Current deferred income taxes 1,534 954 1,368
------- ------- -------
Total current liabilities 47,945 54,555 39,514
Long term debt 6,323 7,348 8,510
Unfunded pension obligation 3,574 3,058 2,977
Postretirement benefit
obligation 11,597 11,435 11,274
Deferred income taxes 3,188 1,414 756
Other liabilities 909 749 369
------- ------- -------
Total liabilities $73,536 $78,559 $63,400
Shareholders' equity
Preferred stock-500,000 shares
authorized; none issued
Common stock-$2 par value;
12,000,000 shares authorized,
4,427,833, 4,370,598 and
4,358,808 shares issued and
outstanding, respectively 8,856 8,741 8,717
Additional paid-in capital 11,479 10,595 10,378
Retained earnings 26,697 24,659 22,720
Foreign currency translation
adjustment 1,742 449 357
------- ------- -------
Total shareholders' equity 48,774 44,444 42,172
------- ------- -------
Total liabilities and
shareholders' equity $122,310 $123,003 $105,572
<FN>
See accompanying notes to the condensed consolidated
financial statements
</TABLE>
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<TABLE>
Waverly, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands of dollars)
<CAPTION>
For the Six Months Ended June 30, 1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $3,056 $1,762
Adjustments to reconcile net income to
net cash used in operating activities
Write-down of property and equipment 83
Postretirement benefit obligation 162 225
Equity in the earnings of affiliated
entities (383) (557)
Depreciation and amortization 2,156 1,784
Deferred income taxes 2,341 (411)
Net periodic pension credit (394) (310)
Change in assets and liabilities adjusting
for the effect of acquisitions
Accounts receivable (2,364) 4,229
Inventories (2,798) (1,126)
Prepaid expenses (1,590) (774)
Accounts payable (1,778) (4,245)
Accrued expenses (1,439) (1,549)
Taxes payable (733) 143
Royalties payable (2,526) (1,683)
Unearned subscription revenues (1,871) (4,349)
Other long-term liabilities 160
-------- --------
Net cash (used in) operations (7,918) (6,861)
Cash flows from investing activities:
Proceeds from sale of discontinued
operations 1,000 2,903
Purchase of property and equipment (3,318) (652)
Acquisition of publishing properties (4,725)
Decrease (increase) in investments
in affiliated entities (323) 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 1,931 6,555
Cash flows from financing activities:
Net borrowings (payments) under short-term
lines of credit 745 (1,529)
Repayment of long-term debt (1,025)
Common stock dividends paid (1,018) (959)
Proceeds from exercise of stock options 1,000 85
-------- -------
Net cash flows (used in)
financing activities (298) (2,403)
Net decrease in cash and
cash equivalents (6,285) (2,709)
Effect of exchange rates on cash and cash
equivalents 390 107
Cash and cash equivalents at January 1, 9,602 5,387
------ ------
Cash and cash equivalents at June 30, $3,707 $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 June 30, 1995
and June 30, 1994, the condensed consolidated statements of
operations for the three and six month periods ended June 30,
1995 and June 30, 1994, and the condensed consolidated
statements of cash flows for the six month periods ended June
30, 1995 and June 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 June 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 June 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)
June 30, 1995 December 31, 1994
------------- -----------------
Finished goods $21,260 $18,996
Work-in-process 6,784 6,230
Raw materials 410 390
------- -------
$28,454 $25,616
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Waverly, Inc.
2. (b) Property and equipment (in thousands of dollars)
June 30, 1995 December 31, 1994
Land $882 $1,193
Buildings 1,755 6,048
Office equipment, computers,
and related software 11,644 15,166
------- -------
Total, at cost 14,281 22,407
Less: accumulated depreciation 4,439 15,351
------- -------
Net property and equipment $9,842 $7,056
2. (c) Other noncurrent assets (in thousands of dollars)
June 30, 1995 December 31, 1994
------------- -----------------
Equity investment in
affiliated entities $3,212 $2,177
Goodwill 8,412 6,717
Publication agreements 15,990 13,758
Other intangible assets 1,249 1,359
Prepaid pension 5,573 5,179
Non-current deferred income taxes 3,359 3,792
Other 536 883
------- -------
Total other noncurrent assets $38,331 $33,865
3. Acquisitions:
Included in other noncurrent assets:
(a) Approximately $0.8 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 $2.2 million of publication rights 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 in training personnel in health care
facilities.
<PAGE>
Waverly,Inc.
Part I. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations: Three Months Ended June 30, 1995
Compared With The Three Months Ended June 30, 1994
Net Sales were $ 39.2 million for the three months ended June
30, 1995 compared with $34.4 million for the three months ended
June 30, 1994, an increase of 14%. Global book publishing revenues
increased 23% over the prior year period. Domestic revenues advanced
25% due principally to higher fall stocking orders to medical
wholesalers and bookstores . International revenues increased
21%. Higher product sales in Europe, particularly in Germany,
account for the increase. Periodical revenues declined 2% from
the prior-year period. Subscription- based revenue remained
unchanged from the prior year but advertising
revenue declined. Electronic Media revenues increased 30 % over
the prior year as a result of new product and higher sales of
existing software and video products. The positive currency
movement in the German mark against the dollar contributed 3% of
the total revenue gain.
Cost of Sales was $ 22.8 million , or 58% of net sales for the
three months ended June 30, 1995 compared to $ 21.2 million, or
62% of net sales for the same period last year, an increase of
8%.
Profit margins improved in book publishing and electronic media
lines principally to higher volume while profit margins for
periodical publishing declined slightly due to lower revenues,
higher editorial costs and rising paper prices.
Selling and Distribution expenses were $ 8.7 million for the
three months ended June 30, 1995
compared to $ 7.7 million for the same period last year, an
increase of 14%, approximately equal to the increase in revenues.
General and Administrative expenses were $ 3.4 million for the
three months ended June 30, 1995 compared to $ 2.9 million
for the same period last year, an increase of 16%. Costs rose
proportionately greater than revenues due to the recording of
higher incentive compensation, larger provision for bad debt and
additional costs associated with the development of new software
for the Company's customer fulfillment system. In addition, in
the prior-year period the Company received office rental income
( from the Cadmus Communications who purchased the Company's
printing division) to help reduce building expenses.
Depreciation and Amortization expenses were $1,090,000 for the
three months ended June 30, 1995 compared to $ 925,000 for the
same period last year, an increase of 18%. The increase is
attributed to amortization for acquisitions made in Germany,
Asia, and the United States, as well depreciation for new
investments in computers and customer fulfillment systems.
Other Income (Expense) was ($32,000) for the three
months ended June 30,1995 compared to ($44,000) for the comparable
period last year. Investment income increased due
to interest earned on installment payments received in
connection with the sale of the Company's printing division.
Interest expense was higher due to settlements on certain tax
audits.
Equity in Earnings of Affiliated Entities was a $ 18,000 loss
for the current period compared to a gain of $ 14,000 for the
prior- year period.
Net Income for the three months ended June 30, 1995 was $
2.1 million compared to $ 1.2 million in the prior- year period,
an increase of 68%. The increase in net income is due to the higher
level of sales in book publishing in both domestic and international
operations coupled with improved cost efficiencies in book manufacturing
and marketing.
<PAGE>
Waverly, Inc.
Results of Operations: Six Months Ended June 30,
1995 Compared With The Six Months Ended June 30, 1994
Net Sales for the six months ended June 30, 1995 were $ 73.9
million compared with $ 63.2 million for the comparable period
last year, an increase of 17%. Global book publishing revenues
were 26% greater than the prior year. Domestic revenues climbed
27%. The increase came from new product sales introduced during
the last nine months, including the classic 26th edition of
Stedman's Medical Dictionary. International revenues were 25%
higher than the same period last year. Periodical revenues were
3% higher due to new journal publications , while circulation
and advertising remain relatively unchanged. Electronic Media
revenue advanced 39% due to the introduction of new product and
stronger backlist sales of existing software and videos. The
positive currency movement in the German mark against the dollar
contributed 4% of the total revenue gain.
Cost of Sales was $ 44.5 million , or 60% of net sales, for the
current period compared to $ 39.8 million or 63% of net sales
for the prior year period. The improved gross margin is a result
of higher book publishing sales and improved manufacturing costs
in book production. Periodical publishing margins declined due
to higher levels of editorial expenses and rising paper costs.
Selling and Distribution expenses were $ 16.8 million or 23 % of
net sales for the six months ended June 30, 1995 compared with $
14.5 million or 23% of net sales for the prior year period. The
increase in expenses is attributed to the higher volume of
revenues.
General and Administrative expenses were $ 6.5 million for the
current period, or 9% of net sales, compared to $ 5.3 million or
8% of net sales for the prior period. The Company incurred
additional expenses for the installation of a new customer
fulfillment system, higher reserves for incentive compensation,
and larger provision for bad debt. In addition, in the prior
year period the Company received rental income for the lease of
certain office space, helping to offset building costs. See
comment in the discussion of second quarter results.
Depreciation and Amortization expenses were $ 2.2 million for
the first six months of 1995 compared to $ 1.8 million for the
same period last year. Amortization expenses increased because
of investments of $ 9.0 million in publishing properties over
the past twelve months. Depreciation increased because of
purchases of new computers and software for customer fulfillment.
Other Income (Expense) was $ 295,000 for the six months
ended June 30, 1995 compared with ($23,000) for the comparable
period last year. Investment income increased because of gains on
foreign currency transactions and interest income earned on the final
payments received in connection with the sale of the printing division in
November, 1993.
Equity in Earnings of Affiliated Entities was $ 383,000 for the
current period compared with $ 557,000 for the same period last year.
Earnings from affiliates in Germany and South America were lower than the
prior- year period.
Net Income was $ 3.1 million for the six months ended June
30, 1995 compared with $ 1.8 million for the six months ended
June 30, 1994, an increase of 73%. Higher revenues in global book
publishing and improved cost margins in book production are the principal
factors for the increase in earnings.
<PAGE>
Waverly, Inc.
Liquidity and Capital Resources
Total assets were $ 122.3 million at June 30,1995 compared with
$ 123.0 million at December 31, 1994 and $ 105.6 million at June
30, 1994. Working capital is $ 26.2 million at June 30, 1995
compared with $ $ 27.5 million at December 31, 1994 and $ 29.9
million at the end of June , 1994.
At June 30,1995 the Company carried a net borrowing position
[defined as cash less short term and long term borrowings ] of
$6.9 million compared with a net cash position of $7.7 million
at December 31, 1994 and a net borrowing position of $0.9
million at June,1994. The drop in net cash since the start of
the year is due to (1) the normal seasonal use of cash received
at the beginning of the year for annual renewal subscriptions,
(2) the buildup of receivables and inventory reflecting the
growth in business, (3) acquisitions of $4.7 million for
publishing properties, (4) capital spending of $1.0 million
for new computers and software for a newly installed customer
fulfillment system, and (5) and leasehold improvements and
furnishings of $1.5 million for new corporate
headquarters.
The Company's long term debt is $6.3 million or 13% of
shareholders' equity at June 30, 1995
compared with $8.5 million or 20% of shareholders' equity at
June 30, 1994. Shareholders's equity is $48.8 million at June
30, 1995 compared with $42.2 million at June 30, 1994, an
increase of 16%. The Company currently pays a dividend of $0.12
per share per quarter , or $0.48 per year . Earnings per
share for the past twelve months is $0.91 per share.
At June 30, 1995 the Company recorded $6.5 million as a deferred
U.S. tax asset . This asset is a result of the recognition in
prior years of postretirement benefit obligations, reserves for
writeoff of assets and recording of expense reserves related to
the sale of the Printing division, reserves for expenses for
relocation of corporate offices, 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 thus has recorded the asset
free of any valuation allowance.
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. Change in Securities
No Change
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On April 24, 1995, the following items were submitted to a vote at
the Company's annual meeting of shareholders:
1. Election of directors:
NOMINEE FOR (a)
------- ---
Barbara J. Bonnell 3,656,733
Donald W. Dick, Jr. 3,656,733
Carolyn Manuszak 3,656,733
E. Magruder Passano, Jr. 3,656,733
Richard C. Riggs, Jr. 3,656,733
(a) Equal to 82% of total shares, less than 1% voted against. The
remaining shares were not voted.
2. Approval of the Waverly, Inc. 1995 Employee Stock Option Plan.
The plan authorizes grants of stock options to eligible persons
to purchase up to 750,000 shares of Company Common Stock. During
any calendar year, options for no more than 50,000 shares may
be granted to any single participant:
FOR 3,174,876
AGAINST 342,993
ABSTAIN 4,575
NOT VOTED 900,893
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
<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: July 31, 1995 E. Philip Hanlon
Vice President, Finance
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JAN-01-1995
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<ALLOWANCES> 670
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0
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