UNITED STATES
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 March 31, 1995, Commission File No. 0-6311
WAVERLY, INC.
Incorporated in the State of Maryland
I. R. S. Employer Identification No. 52-0523730
428 East Preston Street, Baltimore, Maryland 21202
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 March 31, 1995 there were 4,424,858 shares of the
Registrant's Common Stock outstanding.
<PAGE>
<TABLE>
WAVERLY, INC.
Condensed Consolidated Statements of Income (in
thousands of dollars - except per share amounts)
<CAPTION>
(UNAUDITED)
Three Months Ended March 31,
1995 1994
-------------- --------------
<S> <C> <C> <C> <C>
Net sales $34,702 100 % $28,770 100 %
Costs and expenses
Cost of sales 21,705 63 18,539 64
Sellling and distribution 8,098 23 6,873 24
General and administrative 3,094 9 2,387 8
Depreciation and amortization 1,066 3 859 3
------ --- ------ ---
Total operating expenses 33,963 98 28,658 100
Income (loss) from continuing
operations 739 2 112 0
Other income (expense)
Investment income 602 2 330 1
Interest expense (275) (1) (309) (1)
------ --- ------ ---
Total other income (expense) 327 1 21 0
Income (loss) from continuing
operations before taxes and
earnings of affiliated entities 1,066 3 133 0
Income tax (expense) benefit (505) (1) (156) (1)
Equity in the earnings of
affiliated entities 401 1 543 2
----- --- ---- ---
Net Income $962 3 $520 2
Earnings per share:
Net Income $0.22 $0.12
Cash dividends declared
per share $0.11 $0.11
Weighted average shares
outstanding 4,399,073 4,354,601
<FN>
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)
March 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $3,957 $9,602
Investment in marketable securities 7,950 9,282
Accounts receivable, less allowance
for doubtful accounts ($761 and
$746, respectively) 26,808 32,821
Inventories 27,792 25,616
Prepaid expenses 3,504 1,017
Current deferred income taxes 3,190 2,744
Investment in discontinued printing
operations 1,000
------ ------
Total current assets 73,201 82,082
Net property and equipment 8,288 7,056
Other noncurrent assets 36,094 33,865
-------- --------
Total assets $117,583 $123,003
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Line of credit borrowings $1,016 $1,160
Current portion of long-term debt 2,400 2,400
Accounts payable 10,141 13,530
Accrued expenses 6,451 7,723
Royalties payable 2,623 7,950
Unearned subscription revenues 19,057 17,260
Income taxes 3,806 3,578
Current deferred income taxes 1,066 954
------ ------
Total current liabilities 46,560 54,555
Long term debt 6,327 7,348
Unfunded pension obligation 3,462 3,058
Postretirement benefit obligation 11,517 11,435
Deferred income taxes 1,594 1,414
Other liabilities 937 749
------- -------
Total liabilities $70,397 $78,559
Shareholders'equity
Preferred stock-500,000 shares
authorized; none issued
Common stock-$2 par value;
12,000,000 shares authorized,
4,424,858 and 4,370,598 shares
issued, respectively 8,850 8,741
Additional paid-in capital 11,425 10,595
Retained earnings 25,135 24,659
Foreign currency translation adjustment 1,776 449
------- -------
Total shareholders'equity 47,186 44,444
-------- --------
Total liabilities and shareholders' equity $117,583 $123,003
<FN>
See accompanying notes to the condensed consolidated
financial statements
</TABLE>
<PAGE>
<TABLE>
Waverly, Inc.
Condensed
Consolidated Statements of Cash Flows
(in thousands of dollars)
<CAPTION>
(Unaudited) (Unaudited)
For the Three Months Ended March 31, 1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $962 $520
Adjustments to reconcile net income to
net cash provided by operating activities
Postretirement benefit obligation 82 200
Equity in the earnings of affiliated entities (401) (543)
Depreciation and amortization 1,066 859
Deferred income taxes 335 75
Net periodic pension credit (161) (226)
Change in assets and liabilities adjusting
for the effect of acquisitions:
Accounts receivable 6,013 7,758
Inventories (2,176) 387
Prepaid expenses (2,487) (2,084)
Accounts payable (3,389) (4,798)
Accrued expenses (1,272) (2,476)
Taxes payable 228
Royalties payable (5,327) (3,698)
Unearned subscription revenues 1,797 (68)
Other long-term liabilities 188
------- -------
Net cash provided by (used in)
operations (4,542) (4,094)
Cash flows from investing activities:
Proceeds from sale of discontinued
operations 1,000 404
Purchase of property and equipment (1,150) (379)
Acquisition of publishing properties (1,447)
Decrease (increase) in investments in
affiliated entities (520) 217
Proceeds from sales of marketable securities 4,000 3,000
Purchases of marketable securities (2,668) (2,000)
------- -------
Net cash flows provided by (used in)
investing activities (785) 1,242
Cash flows from financing activities:
Net borrowings(payments) under short-term
lines of credit (144) 38
Repayment of long-term debt (1,021) (55)
Common stock dividends paid (487) (481)
Proceeds from exercise of stock options 940 77
------- ------
Net cash flows provided by (used in)
financing activities (712) (421)
Net increase (decrease) in cash and cash
equivalents (6,039) (3,273)
Effect of exchange rates on cash and cash
equivalents 394 43
Cash and cash equivalents at January 1, 9,602 5,387
------- -------
Cash and cash equivalents at March 31, $3,957 $2,157
<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 sheet as of March 31, 1995,
the condensed consolidated statements of operations for the
three month periods ended March 31, 1995 and March 31, 1994, and
the condensed consolidated statements of cash flows for the
three month periods ended March 31, 1995 and March 31, 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 March 31, 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 three month period ended March 31, 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)
March 31, 1995 December 31, 1994
-------------- -----------------
Finished goods $20,393 $18,996
Work-in-process 7,016 6,230
Raw materials 383 390
-------- --------
$27,792 $25,616
<PAGE>
2. (b) Property and equipment (in thousands of dollars)
March 31, 1995 December 31, 1994
-------------- -----------------
Land $1,291 $1,193
Buildings 6,237 6,048
Office equipment, computers,
and related software 16,629 15,166
------ ------
Total, at cost 24,157 22,407
Less: accumulated depreciation 15,869 15,351
------ ------
Net property and equipment $8,288 $7,056
2. (c) Other noncurrent assets (in thousands of dollars)
March 31, 1995 December 31, 1994
-------------- -----------------
Equity investment in
affiliated entities $3,286 $2,177
Goodwill 8,540 6,717
Publication agreements 13,587 13,758
Other intangible assets 1,323 1,359
Prepaid pension 5,340 5,179
Non-current deferred income taxes 3,303 3,792
Other 715 883
------ ------
Total other noncurrent assets $36,094 $33,865
3. Acquisitions:
Included in other noncurrent assets is approximately $1.4
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.
<PAGE>
Waverly, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Waverly, Inc.
We have reviewed the condensed consolidated balance sheet of
Waverly, Inc. and its subsidiaries as of March 31, 1995, and the
related condensed consolidated statements of income and cash
flows for the three month period ended March 31, 1995.
These financial statements are the responsibility of the
company's management.
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 condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as
of December 31, 1994, and the related consolidated statements of
income, cash flows, and stockholders' equity for the year then
ended (not presented herein), and in our report dated February
22, 1995 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1994, is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
We did not audit the 1994 interim financial information and,
accordingly, we do not express an opinion on that information.
Furthermore, that information was not subjected to review procedures
established by the American Institute of Certified Public Accountants.
PRICE WATERHOUSE LLP
Baltimore Maryland
May 1, 1995
The above report is not a "Report" within the meaning of
Sections 7 and 11 of the Securities Act of 1933 and the
Independent Accountants' Liability Provisions of Section 11 of
the act do not apply.
<PAGE>
Waverly, Inc.
Part I. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations: Three months ended March 31, 1995
compared with the three months ended March 31, 1994
Net sales were $34.7 million for the three months ended March
31, 1995 compared with $28.8 million in the prior year period,
an increase of 20.6%. Global book publishing revenues
increased 28.4% compared with the same period last year
accounting for $4.7 million of the total $5.9 million sales
increase. New publications introduced in the fourth quarter of
1994 and the first quarter of 1995, particularly the 26th
edition of the classic Stedman'sR Medical Dictionary,
contributed heavily to the increase. Periodical publishing
revenues were up 8.2% compared with the same period a year ago,
due to new journal publications. Electronic Media revenues rose
55% as a result of new product and increased market penetration
of existing software and video lines.
Cost of sales were $21.7 million for the three months ended
March 31,1995 compared with $18.5 million during the same period
last year, an increase of 17.3%. The gross margin for the three
month period improved to 37.5% compared with a gross margin of
35.6% experienced during the same three month period last year.
The gross margin improvement came mainly from higher book sales
volume and efficiency improvements in editorial and production
areas offset partially by a lower gross margin in the
Periodical Division due to higher manufacturing, royalty and
editorial costs.
Selling and distribution expenses were $8.1 million in the
current period compared with $6.9 million in the prior year period, an
increase of 17.8%. As a percent of sales, the selling and
distribution costs improved slightly to 23.3% compared with
23.9% a year ago.
General and administrative expenses were $3.1 million for the
current period compared with $2.4 million a year ago, an
increase of 29.6%. The increase was due to higher building
costs (the Company was able to lower building costs last year
through an office rental agreement with Cadmus Communications
Inc., the purchaser of the Company's Printing Division), higher
incentive compensation provisiosn due to increased profits and costs
associated with upgrading customer fulfillment systems.
Depreciation and amortization expenses were $1,066,000 in the current
period compared with $859,000 a year ago, a 24% increase. The increase
was due to higher amortization associated with recent acquisitions of
publishing properties and higher depreciation associated with spending
for office equipment, computers, and related software.
Other income and (expense) was $327,000 during the current period compared
with $21,000 in the prior year period. Reduced interest expense from lower
long-term debt and foreign currency transaction gains account for the increase
in investment income.
Equity in the earnings of affiliated entities was $401,000 for the current
three month period compared with $543,000 a year ago. Lower earnings from
the minority-owned affiliates in Germany accounts for the decrease.
Net income (loss) for the three months ended March 31, 1995 was $962,000
or $0.22 per share compared with $520,000 or $0.12 per share a year ago.
Profit margins in global book publishing and electronic media increased
as a result of higher sales and efficiency improvements in production and
marketing.
<PAGE>
Liquidity and Capital Resources
Total assets at March 31, 1995 were $118 million, a decrease of approximately
4% since December 31, 1994. This decrease reflects use of cash and
marketable security investments and the $1.0 million received this year from
the printing sale to reduce short and long-term debt and various current
liabilities.
Cash, cash equivalents and marketable securities were approximately
$11.9 million at March 31, 1995 compared with $18.9 million at
December 31, 1994 and $12.3 million at March 31, 1994. The reduction in
cash, cash equivalents and marketable securities since December 31, 1994 is
principally the reult of the seasonal use of cash to pay semi-annual author
and periodical royalties and periodical editorial allowances. In addition,
cash was used to reduce debt, fund business acquisitions and purchase
office equipment, computers, and related software.
Working capital was $26.6 million at March 31, 1995 compared with $27.5 million
at December 31, 1994, and $28.2 million at March 31, 1994. The decrease
of $0.9 million since December 31, 1994 is due mainly to fund the Info-Med
acquisition.
The Board of Directors approved an increase in the quarterly dividend from
$0.11 per share to $0.12 per share, effective for shareholders of record
on March 26, 1995 and payable on June 12, 1995.
As of March 31, 1995, the Company has recorded deferred tax assets amounting
to $6.5 million, due primarily to the recognition of postretirement benefit
obligations, future inventory-related deductions, depreciation, and the sale
of the Printing Division. Based on the Company's long-term earnings record
and projected future earnings, the deferred tax asset was recorded free
of any valuation allowance.
<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. Exhibits
Exhibit 15 - Letter from Price Waterhouse LLP, independent
accountants, re unaudited financial information.
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.
E. Philip Hanlon
Vice President, Finance
May 1, 1995
May 1, 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 May 1, 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,
PRICE WATERHOUSE LLP
Baltimore, Maryland
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 3957
<SECURITIES> 7950
<RECEIVABLES> 27569
<ALLOWANCES> 761
<INVENTORY> 27792
<CURRENT-ASSETS> 73201
<PP&E> 24157
<DEPRECIATION> 15869
<TOTAL-ASSETS> 117583
<CURRENT-LIABILITIES> 46560
<BONDS> 0
<COMMON> 8850
0
0
<OTHER-SE> 11425
<TOTAL-LIABILITY-AND-EQUITY> 117583
<SALES> 34702
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<CGS> 21705
<TOTAL-COSTS> 21705
<OTHER-EXPENSES> 0
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</TABLE>
