UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 10-K
(Mark one)
[ X ] Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 [Fee Required]
For the Transition period from _____________________ to
_____________________________
Commission File Number 0-6311
WAVERLY, INC.
-------------
(Exact name of Registrant as specified in its charter)
Maryland 52-0523730
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
351 West Camden Street
Baltimore, Maryland 21201
- ------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-528-4000
Indicate by check mark whether the Registrant (1) : has filed
all reports required to be filed by Sections 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K.
[ X ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was $79,121,892, as of February
26, 1996. The number of shares outstanding of the Registrant's
Common Stock was 4,443,419 as of February 26, 1996.
Proxy Statement for the 1996 annual meeting of shareholders of the Registrant
is incorporated by reference in Part III of this Form 10-K.
Page 1 of 46
<PAGE>
PART I
Item 1. Business
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General Description
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Waverly, Inc. ( "Waverly" or the "Company" ) is a worldwide
publisher of books, periodicals and electronic media in the
fields of medicine, allied health and related disciplines.
Products are distributed to students, practitioners,
institutions and companies engaged in the health care industry.
The Company has operating offices in the United States ,
Europe, the Far East, and South America.
The Company was established in 1890 originally as a printer of
periodicals for medical and scientific associations. In 1908
the Company entered the medical publishing marketplace under the
trade name Williams & Wilkins which continues to be the flagship
name for the Company's publishing operations. From 1988 through
1990 the Company acquired other publishing businesses that
carried distinct trademark names, including Lea & Febiger and
Urban & Schwarzenberg. Prior to November, 1993 the Company was
also a major printer of periodicals principally for medical and
scientific associations. The Company sold its printing
operations in November, 1993.
The Company's products are sold to customers in over 50
countries. The Company markets and distributes its products in
several ways including direct mail, telemarketing, field sales
forces and independent distributors.
Financial disclosure of sales by geographical area for the three
years ending December 31, 1995 appears in Note 14 - Net Sales by
Geographic Areas of the Company's 1995 financial statements and is
incorporated herein in Item 8 of this Form 10-K Annual Report.
The Company is incorporated in Maryland and its principal
executive offices are located at 351 W. Camden Street,
Baltimore, Maryland 21201.
Page 2 of 46
<PAGE>
Description of Specific
Publishing Businesses
-----------------------
Waverly publishes periodicals, books and electronic media to
the health care market. Products are sold to students and
schools in medicine and other health care programs,
practitioners, pharmaceutical firms, health care institutions,
medical equipment companies, as well as other firms in the
general information and publishing business.
A. Periodical Publishing
- -------------------------
The Company publishes periodicals under the trade name of
Williams & Wilkins ( "W&W" ) . The Company considers itself
to be a leading publisher in the fields of medicine, allied
health, and related disciplines. Although there does not exist
an official source of market statistics to verify market share,
the Company believes that it ranks within the top five medical
publishers in the United States.
Waverly publishes periodicals for major medical and scientific
societies (" society publishing ") with whom they jointly share
in certain editorial and publishing responsibilities. Profits
from each periodical are shared by the Company and the society
as dictated by the contract terms. The majority of these
publications are linked to prestigious international
organizations including the American Urological Association,
the American Society of Plastic and Reconstructive Surgeons and
the Congress of Neurological Surgeons. The Company typically
works under long-term contracts with these organizations ( three
to five years in duration ) . Waverly has been successful over
the years in renewing such contracts. Its average retention
rate over the last ten years is in excess of 75%. Some of the
societies have contracted with the Company for over twenty-five
years. The Company currently publishes 48 society periodicals.
Waverly believes that the relationship with the medical
associations and their members are an important link in its
ability to attract new authors for its periodical publications
as well as for its book and electronic publishing programs. The
Company also publishes periodicals which are directly owned by
Waverly ( " proprietary periodicals " ) . In 1995, Waverly
published 26 such periodicals.
In 1980 the Company published 36 periodicals compared to the
current roster of 79 publications. Circulation of subscription
based periodicals ranges from 500 for new or narrowly
specialized publications to over 20,000 for leading publications
in broader based disciplines. Approximately 20% of the
subscribers are located in foreign countries.
Approximately 65% of the periodicals are published for
subscribers in the fields of medicine, including disciplines
such as obstetrics and gynecology, psychiatry, nephrology,
urology, anesthesia and neurology. The remaining 35% of the
publications are directed at the fields of allied health,
including nursing, physical and respiratory therapy, audiology
and chiropractic.
Historically, more than 75% of the subscribers to periodicals
renew their subscriptions. The Company uses both direct mail
campaigns as well as independent subscription agents throughout
the world to secure renewals. At December 31, 1995 and 1994
the Company's paid subscriber base was approximately 385,000 and
377,000 respectively.
Revenues generated from periodical publishing come from three
principal sources. Subscription fees account for approximately
60% of the total. Advertising revenues, principally from
Page 3 of 46
<PAGE>
pharmaceutical and medical equipment manufacturers, contribute
approximately 20% of the total. The remaining 20% is derived
from sales of reprint articles, mail lists, annual bound volumes
and special supplement insert issues from pharmaceutical firms.
The Company publishes four periodicals ( commonly referred to as
"controlled circulation" journals ) which rely entirely on
advertising revenue for its income source.
B. Book Publishing
- -------------------
1. General Information
The Company publishes and distributes world-wide over 1,300
titles to students, practitioners, institutions and health care
firms. Although no firm industry statistics are available, the
Company believes that it is one of the top ten medical book
publishers in the world.
In the United States, the Company publishes principally under
the name of Williams & Wilkins although certain other trade
names are used where there is a strategic advantage to do so.
Other tradenames used include Lea & Febiger, National Medical
Series, and Stedman's Word Book Series. In Munich, Germany the
Company owns a publishing firm which operates under the trade
name Urban & Schwarzenberg.
The Company publishes approximately 45% of its titles for the
student marketplace while the remaining 55% of titles are
directed to medical practitioners and others engaged in the
health care industry. Over the years the Company has
successfully built a base of product that continues in updated
revised editions. It is not uncommon for some titles to
continue for 10-15 years and beyond its initial publication,
particularly for subjects in basic sciences, atlases and
dictionary books. In 1995 approximately 40% of the Company's
book products have extended beyond the first edition life cycle.
The Company publishes approximately 900 English language books
and 400 German language books. On average, the Company
introduces annually 150 - 200 new titles or new editions of
existing titles ( commonly referred to as frontlist titles ) .
During the past three years, book publishing revenues consist of
approximately 30% frontlist titles, 55% backlist titles and 15%
from special sales to the pharmaceutical industry.
2. Marketing & Distribution
In the United States the Company markets and distributes its
publications through several sources including direct mail,
telemarketing, field sales forces and independent distributors.
The Company promotes and distributes its English language
products to international markets through a separate dedicated
division. The division maintains offices in Baltimore, London,
Paris, Buenos Aires , Hong Kong and Bangkok. In addition, the
Company is a partner in two distribution companies located in
Sydney, Australia , Tokyo, Japan.
The Company promotes and distributes German language
publications through direct mail, bookstores, and commissioned
sales agents. In addition, the Company owns a direct mail
order firm in Munich, Germany which sells medical and scientific
books of varied subject matter to professionals and
non-professionals. The Company also operates a publishing firm
in Wroclaw, Poland to translate both English and German language books
into the local language.
Page 4 of 46
<PAGE>
The Company participates in a number of co-publishing ventures
with foreign publishers located in South America, Europe, Asia
and the Middle East to translate the Company's English language
titles into local language. Under these arrangements the
Company retains ownership rights to the translated titles.
Separately, the Company also sells outright translation rights
to certain book titles. At this time over 450 titles have been
translated into non-English language versions.
C. Electronic Media Publishing
- ------------------------------
The Professional Learning System Division ( " PLS " )
publishes non-print products for use in education, training and
productivity improvement for students and practitioners in
nursing, medicine and professionals in health care related
industries. Products are marketed under various the trade
names including Williams & Wilkins , Medi-Sim, Stedman Words,
and de'MEDICI.
Approximately 400 non-print products are sold in various types
of formats including software, video, computer assisted
instruction ( CAI ), interactive video disc and CD ROM formats.
The Company develops original products for electronic format and
in certain cases will convert existing print product into
electronic format for sale.
The Company also participates in certain development and
distribution projects with other firms to share in technology
and market expertise.
The Company believes that the non-print product demand will
increase rapidly over the next several years . The Company
believes it is a leader in the medical publishing industry for
providing such non-print products.
D. Competition in Medical Publishing
- -------------------------------------
Medical publishing is a highly competitive business. While there
is no conclusive marketing data available to rely on, it is
reasonable to ascertain that approximately 10 -15 medical
publishing firms control over 70% of the global medical
publishing marketplace. There are well over 100 smaller
publishing firms that publish for a narrowly targeted audience
of medical professionals.
Over the past twenty years a number of large publishing firms,
not previously engaged in medical publishing, have entered the
marketplace through the acquisitions of one or more medical
publishing firms. The principal competitors of the Company are
owned by larger corporations with substantial financial
resources who engage in broad range of publishing activities.
The Company believes that it can compete effectively in the
current market environment. Key competitive industry
capabilities continue to be the ability (1) to correctly
identify educational, training , and other professional learning
needs of the customer, (2) to attract quality authors and acquire and
develop valuable publication properties, (3) to publish
products faster and cheaper, particularly through evolving
electronic processes, (4) effectively market and distribute
products throughout the world.
As is common in the publishing business, substantially all of
the Company's books and periodicals are protected by copyrights.
Page 5 of 46
<PAGE>
Employees
---------
As of March 1, 1996, the Company had 651 employees.
Item 1. Executive Officers of the Registrant
- ---------------------------------------------
Set forth below are the names, ages, titles and principal
occupations during the past five years of the persons who serve
as executive officers of the Company:
Position and Business Experience
Name Age During Past Five Years or More
- --------------------------------------------------------------------------
William M. Passano, Jr. 67 Chairman of the Board since 1988.
Chief Executive Officer from 1971
to 1991. Director since 1965.
Employed by the Company since 1955.
Edward B. Hutton, Jr. 50 President and Director since May,
1988. Chief Executive Officer
since 1991. From 1983 to 1988
was President of Professional
Information Group of Simon &
Schuster, Inc.
Michael Urban 56 President of Urban & Schwarzenberg
and Director since 1990. Employed
by the Company since the April
1990 acquisition of Urban &
Schwarzenberg. From 1990 has been
President, and Chief Executive
Officer.
Arthur E. Newman 47 Employed by the Company since
April, 1990 as Executive Vice
President. From 1986 through
October, 1989 held various
executive positions at
Simon & Schuster, Inc. ending
as Chief Operating Officer of
Prentice Hall Information Services.
This division was sold to Maxwell
MacMillan in October 1989, where he
continued in the same capacity until
March, 1990.
Richard J. Perry 50 President, W & W Marketing Division
since 1993. Executive Vice President
of Lea & Febiger from 1991 to 1992.
From 1989 to 1990 was Vice President
and General Manager at Times Mirror,
Canada.
George Stamathis 43 President, Book Publishing since
March, 1994. From 1990 to 1994 was
Vice President and Publisher of
Medical Group at C.V. Mosby. From
1989 to 1990 was Publisher of
Medical Group at C.V. Mosby.
Alma J. Wills 48 President, Periodical Publishing
since 1986. Vice President, Journal
Development from 1984 to 1986.
Employed by the Company since 1976.
Carolyn T. Donohue 58 President, International Division
since 1988. Vice President,
International Marketing from 1981 to
1988. Employed by the Company since
1957.
Page 6 of 46
<PAGE>
Item 1. Continued
Position and Business Experience
Name Age During Past Five Years or More
- ----------------------------------------------------------------------------
E. Magruder Passano, Jr. 53 Vice Chairman, Secretary since
April, 1990. Vice President,
Administration and Corporate
Secretary from 1971 to 1990.
Director since 1972. Employed by
the Company since 1965.
E. Philip Hanlon 47 Vice President, Finance, since
March, 1989 and Chief Financial
Officer, since 1992. Vice President,
Marketing-Book division from 1987
to 1989. Controller from 1985
to 1987.
Frederick Fusting 45 President, Professional Learning
Systems Division appointed January
1996. Vice President, PLS Division
from 1988 to 1995. Employed by the
Company since 1980.
Item 2. Properties
- --------------------
In June 1995 the Company relocated it's corporate headquarters
to Camden Yards South Warehouse located on 351 West Camden
Street, Baltimore, Maryland 21201. Details of this lease
between Waverly, Inc. and the Maryland Stadium Authority is
incorporated by reference to Exhibit 10H filed with the 1994
Annual Report on Form 10-K. The previously owned locations in
Baltimore were sold to the City of Baltimore.
<TABLE>
As of December 31, 1995, the Company had leases at the
following principal locations:
<CAPTION>
Location Use Square Feet Annual Cost Expiration
(000'S) Dates
-------- --- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Camden Yards South Office Space 72,400 $607 in 1995 2005
Warehouse increasing to a
351 W. Camden Street maximum of $1,182
Baltimore, Md. 21201 in 2004.
Urban & Schwarzenberg - Office space, 35,500 594 Various with
Europe Warehouse and earliest in
Bookstores 1999
Waverly Europe (London Office space 4,000 90 1997
and Paris)
Media, Pennsylvania Office space 7,500 141 1999
Waverly Info-Med Office space 2,500 72 1996
Limited Hong Kong
<FN>
In addition to the leases referred to above, the Company or its
subsidiaries have leases on space at various locations with a
total annual rental of approximately $30,000.
</TABLE>
Page 7 of 46
<PAGE>
Item 3. Legal Proceedings
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As of the date of this report, there were no material legal
proceedings pending against the Company or any of its
subsidiaries. No material lawsuits or proceedings were
terminated in the fourth quarter of 1995.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matters were submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth
quarter of 1995.
Part II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters
- -------------------------------------------------------------
The common stock of Waverly is traded on the over-the-counter
market, with daily quotations reported in the NASDAQ quotation
system. As of February 26, 1996, there were 4,443,419 shares
outstanding (4,821,027 if adjusted for stock options exercisable
within 60 days after the record date). 1,954,875, or 44.0%, are
owned by members of the Passano family, 400,000 shares, or 9.0%,
are owned by Michael Urban, and 248,500 shares, or 5.6%, are
owned by various members of the Spahr family, all of whom
participate in voting trusts with terms similar to those of the
voting trust of certain members of the Passano family. There are
417 record holders of the common stock as of February 26, 1996.
The following table sets forth the range of high and low prices
of the Company's common stock, and the dividends paid in each of
the four quarters of the last two years.
1995 1994
-------------------------- ---------------------------
Quarter High Low Dividends High Low Dividends
- ------- ---- --- --------- ---- --- ---------
First $ 34.00 $ 26.25 $ .11 $ 20.25 $ 17.00 $ .11
Second 37.00 33.25 .12 19.25 16.50 .11
Third 37.00 34.75 .12 19.75 17.25 .11
Fourth 46.75 36.25 .12 27.00 17.00 .11
------ ------ ----- ------- ------ -----
Year $ 46.75 $ 26.25 $ .47 $ 27.00 $ 16.50 $ .44
======= ======= ===== ======= ======= =====
Page 8 of 46
<PAGE>
Item 6. Selected Financial Data
- ---------------------------------
<TABLE>
Key Financial Data Five-Year Financial History*
(in thousands of dollars except ratios and per share amounts)
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 156,078 $ 131,914 $ 121,684 $ 124,614 $ 111,586
Income (loss) from
-continuing operations 5,305 4,888 (2,615) 2,766 851
Discontinued printing
operations - (228) 607 1,999 2,530
Effect of changes in
accounting principles - - - (4,873) -
Net income (loss) 5,305 4,660 (2,008) (108) 3,381
- -----------------------------------------------------------------------------------------
Data Per Common Share:
Income (loss) from
-continuing operations $ 1.15 $ 1.12 $ (.60) $ .64 $ .20
Discontinued printing
operations - (.05) .14 .46 .58
Effect of changes in
accounting principles - - - (1.13) -
Net income (loss) 1.15 1.07 (.46) (.03) .78
Shareholders' equity
(book value) 11.26 10.17 9.26 10.31 10.97
Cash dividends paid .47 .44 .44 .41 .40
Average common shares (thousands) 4,422 4,360 4,337 4,328 4,330
- ----------------------------------------------------------------------------------------
Balance Sheet Data:
Total assets $ 128,199 $ 123,003 $ 116,317 $ 114,823 $ 111,174
Investment in discontinued
printing operations - 1,000 2,903 18,460 18,016
Working capital 22,211 25,832 26,495 34,777 28,904
Current ratio 1.4 1.5 1.5 1.8 1.7
Long-term debt 3,680 7,348 8,435 10,892 12,247
Shareholders' equity 49,896 44,444 40,298 44,625 47,435
========================================================================================
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
Results of Operations
- ---------------------
In 1995, the Company's earnings improved significantly over
1994. While 1994 was a rebound year from the loss recorded in
1993 following the sale of the Printing Division, 1995 reflects
the full year impact of restructuring initiatives started two
years ago to streamline publishing operations and expand new
product development. In 1995, revenues and earnings were at
record levels. Growth in both domestic and international markets
was spurred by a 15% increase in the number of new publications
while indirect costs of doing business grew at a slower rate. As
a result, operating profit margins nearly doubled from the prior
year.
From late 1994 and in 1995, the Company invested approximately
$8.0 million to acquire three companies and two publications
that will broaden its customer base and expand its international
operations.
Page 9 of 46
<PAGE>
The Company continues to enjoy a strong foothold in the global
health care publishing marketplace. While year-to-year
introductions of new products tend not always to move in even
patterns, the Company expects in 1996 to show continued revenue
and income growth, albeit not at the rate enjoyed in 1995.
1995 COMPARED WITH 1994
- -----------------------
Company revenues for 1995 totaled $156.1 million, an increase of
$24.2 million, or 18%, compared with 1994. The Company's three
major business segments all produced increases over the prior
year. Book Publishing revenues were $98.0 million in 1995
compared with $78.7 million in 1994, an increase of 24%. Growth
in revenues was spurred by a greater number of new products
published, 229 compared with 181 titles published in 1994. In
particular, the Company published the 26th edition of the
classic Stedmans Medical Dictionary, one of its all-time best
sellers, which produced revenues in excess of $2.0 million.
Acquisitions in late 1994 and during 1995 added $4.0 million
dollars to revenues. International sales, which provide nearly
60% of book revenues, rose 29% over the prior year. Export sales
of English language books increased 16% and sales of German
language books climbed 34%. Currency valuations in European
operations inflated year-to-year comparisons by approximately 5%.
Periodical Publishing revenues were $52.1 million in 1995
compared with $48.2 million in 1994, an increase of 8%. The
Company published 77 periodicals in 1995 compared with 72 in
1994. Circulation, a measurement of the health of the portfolio,
increased 6% over the prior year. The increase in revenue came
mainly from the addition of 5 new publications and a 13%
increase in advertising-related business. Professional Learning
Systems Division (PLS) (formerly Electronic Media) revenues in
1995 increased 19% over 1994. Gains in revenues came from new
software products and new releases of previously successful
products and the partial year inclusion of de'Medici, a
hospital-based interactive training system.
Cost of sales was $94.4 million in 1995 compared with $82.4
million in 1994, an increase of 15%. As a percentage of sales,
costs were 60.5% in 1995 and 62.5% in 1994. Cost margins for
Book Publishing were 58.6% in 1995 compared with 61.4% in 1994.
Improvements were achieved through more stringent and
competitive pricing for manufacturing services and efficiency
gains from greater output. Periodical Publishing cost margins
were 69.9% in 1995 compared with 68.2% in 1994. Paper price
increases during the first half of the year was the principal
factor in the year-to-year change. PLS cost margin was 46.7% in
1995 compared with 49.8% in 1994.
Selling and distribution expenses were $36.7 million in 1995 and
$29.8 million in 1994, an increase of 23%. As a percentage of
sales, expenses were 23.5% in 1995 and 22.5% in 1994. Expenses
increased because of planned expansion in the marketing and
sales forces, new investments in customer service systems, and
higher promotion expenditures for the heavy fourth quarter
publication schedule, which should benefit future periods.
General and administrative expenses were $12.3 million in 1995
and $12.1 million in 1994. As a percentage of sales, expenses
were 7.9% in 1995 and 9.2% in 1994. Expenses grew slower than
the rate of sales increase due to the full-year impact of staff
reductions initiated in 1994, lower health care costs per
employee, and the benefit of economic efficiencies attributed to
the higher volume of business.
Page 10 of 46
<PAGE>
Other income was $1.35 million in 1995 and $1.32 million in
1994. Interest earned on invested cash was down from the prior
year due to use of cash for acquisitions. Miscellaneous income
from various other sources including rental income and
management fees increased over last year. Interest expense was
$1.2 million for both years. Interest on long-term debt
decreased due to principal repayments but additional interest
was paid on completion of prior-year tax audits.
Equity in earnings of affiliated entities was $316,000 in 1995
compared with $2.8 million in 1994. Included in last year's
earnings was a gain of approximately $2.5 from the sale of a 48%
minority-owned investment in Urban & Vogel, a German language,
controlled circulation magazine publisher.
Income taxes were $2.6 million in 1995 and $1.2 million in 1994.
The effective tax rate was 33.9% in 1995 and 35.0% in 1994.
Income from continuing operations was $5.3 million, or $1.15 per
share, in 1995 compared with $4.9 million, or $1.12 per share,
in 1994. Excluding the effect of Urban & Vogel, discussed
previously, earnings in 1994 were $0.62 per share. The
significant year-to-year increase in the ongoing operations of
the Company is a result of initiatives taken over the past two
years to expand new product introductions, further penetrate
foreign markets, and increase operating efficiencies.
During 1994 the Company recorded an additional charge of
$228,000, or $0.05 per share, to discontinued operations to
reflect the final measurement of the loss on the 1993 sale of
the Printing Division.
Net income was $5.3 million, or $1.15 per share, in 1995
compared with $4.7 million, or $1.07 per share, in 1994.
1994 COMPARED WITH 1993
- -----------------------
Revenues in 1994 were $131.9 million compared with $121.7
million in 1993, an increase of 8.4%, or $10.2 million. Global
Book Publishing sales increased $9.2 million over 1993,
representing 90% of the increase. Approximately $5.0 million, or
54%, of the global Book Publishing increase comes from the
Company's German subsidiary, Urban & Schwarzenberg, due mainly
to more new titles published during 1994 than published during
1993. An additional $1.4 million, or 15%, of the increase came
from the Company's international export markets, particularly
through the Company's European subsidiary, Waverly Europe, which
also benefited from the recorded revenues from the recently acquired French
publisher, Editions Pradel. The remaining $2.8 million, or 31%, of the total
book sales improvement came from domestic operations, owing to a stronger
publication schedule. Electronic media sales increased $0.8
million, or 19.4%, over a year ago due to a greater number of
new software and video products introduced during the year. The
remaining $0.2 million of the overall Company sales increase
came from Periodical Publishing. Subscription-based products
continued to expand but were offset by the continued softness in
pharmaceutical advertising revenue.
Cost of sales were $82.4 million in 1994 compared with $77.6
million in 1993, an increase of 6% compared with the revenue
increase of 8.4%. The cost of sales as a percentage of net sales
was 63% in 1994 compared with 64% in 1993. The profit margins in
both Periodical Publishing and
Page 11 of 46
<PAGE>
electronic media are unchanged compared with those in 1993. The
profit margins in global book publishing improved across the
board. Production efficiencies are being realized from cost
savings from the restructuring, a higher volume of sales, and
improved margins on European sales.
Selling and distribution costs were $29.8 million in 1994
compared with $29.4 million in 1993, an increase of 1%. As a
percentage of sales, selling and distribution expenses have
reduced to 22.5% in 1994 compared with 24.1% a year ago. The
margin improvement is from savings associated with the
restructuring plan implemented in 1993 and lower direct
promotion expenses.
General and administrative expenses were $12.1 million in 1994
compared with $10.3 million a year ago, an increase of 18%. As a
percentage of sales, general and administrative costs were 9.2%
in 1994 compared with 8.4% in 1993. Incentive compensation
expenses of $1.2 million were awarded in 1994 to corporate and
Book Publishing groups not awarded in 1993. In addition, bad
debt expense and noncapitalizable costs associated with
installing a new customer fulfillment system contributed to the
increase in total expenses.
Depreciation and amortization costs in 1994 were $4.5 million
compared with $4.1 million a year ago, an increase of
approximately 5%. The increase was due mainly to higher
depreciation from computer equipment purchases. Amortization
charges were down slightly from a year ago. Additional
amortization associated with the recent acquisitions has been
offset by the expiration of amortization from earlier
acquisitions.
Total other income and expense netted to $126,000 of income in
1994 compared with $488,000 of expense in 1993, a change of
$614,000. This improvement was due mainly to higher investment
income and debt reduction due to the cash generated from the
sale of the Printing Division. In addition, the Company
benefited during the fourth quarter of 1994 from the cash
generated from the sale of the minority interest in Urban &
Vogel.
Equity in the earnings of affiliated entities was $2.8 million
of income compared with losses of $0.4 million, an improvement
of $3.2 million. $2.5 million of the improvement comes from the
net gain on the sale of the Company's 48% minority interest in
Urban & Vogel, a German language, controlled circulation magazine publisher.
The balance of the$0.7 million improvement was from higher earnings from
minority-owned affiliates in Germany, South America, and the Far
East.
Income (loss) from continuing operations in 1994 was $4.9
million, or $1.12 per share, compared with a loss of $2.6
million, or $0.60 per share, in 1993. As discussed above under
Results of Operations, the $7.5 million improvement in earnings
is due principally to three factors. Core publishing earnings
rose $2.1 million, owing to higher global book publishing sales
with added benefit from manufacturing efficiencies and cost
savings from the restructuring plan. Earnings from minority
interest in foreign affiliates rose $3.2 million, including a
$2.5 million gain from the sale of Urban & Vogel, previously
discussed. Finally, in 1993 the Company took a one-time
after-tax charge of $2.2 million to recognize costs associated
with the publishing group consolidation and facility relocation.
During 1994, the Company recorded to discontinued operations an
additional loss of $228,000, or $.05 per share, to reflect
final measurement of the sale.
Page 12 of 46
<PAGE>
Net income was $4.7 million, or $1.07 per share, compared with a
net loss of $2.0 million, or ($0.46) per share, a year ago. 1993
included publishing losses of $2.6 million offset by $0.6
million of discontinued operation earnings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents were $4.6 million at December 31, 1995
compared with $9.6 million and $5.4 million at December 31, 1994
and 1993, respectively. In 1995, net income adjusted for noncash
items was $12.0 million compared with $5.4 million in 1994 and
$3.1 million in 1993. Cash generated in 1995 was used to support
continuing operations. Working capital, excluding cash,
increased $11.5 million, principally to support a higher level
of inventory resulting from a greater number of titles published
in 1995, particularly in the fourth quarter of the year. In
addition, receivables increased $3.1 million due to an 18%
increase in year-to-year sales.
The Company's financing and investing activities generated
approximately $11.3 million of cash. Cash was generated from the
liquidation of $9.3 million of short-term marketable securities,
$1.1 million through exercise of stock options, and $1.0 million
from the final installment payment on the Printing Division sale
consummated in 1993. The cash was used to acquire business and
publishing properties amounting to $6.3 million, purchase
property and equipment of $4.9 million including $1.9 million
spent on building and office furnishings for the Company's new
corporate headquarters, pay dividends of $2.1 million, and
reduce bank debt by $3.2 million.
The Company maintains bank lines of $39.0 million worldwide.
There were short-term borrowings of $0.2 million at year end,
leaving a borrowing capacity of $38.8 million at December 31,
1995. The Company expects the bank lines to be sufficient to
finance operating activities in 1996 with a minimal short-term
borrowing balance at December 31, 1996. In addition, the Company
will retire $3.8 million of its long-term debt during 1996. The
Company guarantees various lines of credit, not to exceed $0.4 million
for the jointly owned affiliate, Mosby-Williams & Wilkins Pty., Ltd.
At December 31, 1995, the Company has recorded deferred tax
assets amounting to $6.4 million, due primarily to
postretirement benefit obligations and future inventory-related
deductions. Based on the Company's long-term earnings record and
projected future earnings, the deferred tax asset was recorded
free of any valuation allowance.
In 1996 the Company expects to invest $1.5 million for capital
expenditures, principally computer equipment and related
software, and $2.5 million for electronic product development.
In addition, the Company will likely appropriate $3.0 to $5.0
million for as yet unidentified acquisitions of publishing
properties and businesses during 1996.
In 1996 the Company expects cash flow from operations to be
adequate to fund capital investments, dividend payments, and
scheduled long-term debt retirements.
Page 13 of 46
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Report of Independent Accountants
The Board of Directors and Shareholders of Waverly, Inc.
We have audited the accompanying consolidated balance sheet of
Waverly, Inc. and subsidiaries as of December 31, 1995 and the
related consolidated statements of operations, shareholders
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial
statements of Waverly, Inc. and subsidiaries as of December 31,
1994 and for the years ended December 31, 1994 and 1993 were
audited by other auditors, whose report, dated February 22, 1995
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Waverly, Inc. and subsidiaries as of
December 31, 1995 and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Baltimore, Maryland Coopers & Lybrand L.L.P.
February 1, 1996
Page 14 of 46
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of Waverly, Inc.
In our opinion, the consolidated financial statements and
financial statement schedules listed under Part IV item 14 for
1994 and 1993 present fairly, in all material respects, the
financial position of Waverly, Inc. and its subsidiaries at
December 31, 1994, and the results of their operations and their
cashflows for the two years then ended in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
February 22, 1995
- -----------------------------------------------------------------------------
<TABLE>
Waverly, Inc.
Consolidated Balance Sheets
(in thousands of dollars except per share amounts)
<CAPTION>
At December 31, 1995 1994
- ---------------- ---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,580 $ 9,602
Investments in marketable securities - 9,282
Accounts receivable, less allowance for doubtful accounts
($796 and $746, respectively) 37,730 32,821
Inventories 31,531 23,921
Current deferred taxes 3,042 2,744
Other current assets 1,053 2,017
------------ ------------
Total current assets 77,936 80,387
Property and equipment
Land 849 1,193
Buildings and improvements 2,549 6,048
Office and computer equipment 11,713 14,608
------------ ------------
15,111 21,849
Less: accumulated depreciation (5,811) (15,351)
------------ ------------
Net property and equipment 9,300 6,498
Page 15 of 46
<PAGE>
Intangible assets (Note 4) 26,132 21,834
Electronic product development costs 2,908 2,253
Investments in affiliated entities 2,438 2,177
Prepaid pension 5,967 5,179
Deferred taxes 3,371 3,792
Other assets 147 883
----------- ------------
Total assets $ 128,199 $ 123,003
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Line of credit borrowings $ 200 $ 1,160
Current portion of long-term debt 3,790 2,400
Accounts payable 16,092 13,530
Accrued expenses 6,674 7,723
Royalties payable 9,491 7,950
Unearned subscription revenues 15,177 17,260
Income taxes payable 3,109 3,578
Current deferred taxes 1,192 954
---------- ---------
Total current liabilities 55,725 54,555
Long-term debt 3,680 7,348
Unfunded pension obligation 3,447 3,058
Postretirement benefit obligation 11,691 11,435
Deferred taxes 2,836 1,414
Other liabilities 924 749
---------- ----------
Total liabilities 78,303 78,559
Commitments and contingencies
Shareholders' equity
Preferred stock 500,000 shares authorized; none issued
Common stock $2 par value; 12,000,000 shares authorized,
4,432,984 and 4,370,598 shares issued and outstanding,
respectively 8,866 8,741
Additional paid-in capital 11,943 10,595
Retained earnings 27,883 24,659
Foreign currency translation adjustment 1,204 449
---------- ----------
Total shareholders equity 49,896 44,444
---------- ----------
Total liabilities and shareholders equity $ 128,199 $ 123,003
======================================================================================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
Page 16 of 46
<PAGE>
<TABLE>
Waverly, Inc.
Consolidated Statements of Operations
(in thousands of dollars except per share amounts)
<CAPTION>
For the year ended December 31, 1995 1994 1993
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues $ 156,078 $ 131,914 $ 121,684
Costs and expenses
Cost of sales 94,439 82,399 77,616
Selling and distribution 36,694 29,761 29,353
General and administrative 12,257 12,119 10,274
Depreciation and amortization 5,292 4,479 4,108
Restructuring and facility relocation charges - - 3,572
--------- --------- ---------
Total operating expenses 148,682 128,758 124,923
--------- --------- ---------
Operating income (loss) 7,396 3,156 (3,239)
Other income (expense)
Investment income 1,355 1,323 889
Interest expense (1,201) (1,197) (1,377)
--------- ---------- ----------
Total other income (expense) 154 126 (488)
--------- ---------- ----------
Income (loss) from continuing operations
before income taxes and earnings of affiliated
entities 7,550 3,282 (3,727)
Income tax (expense) benefit ( 2,561) (1,150) 1,521
Equity in the earnings (losses) of affiliated
entities, including net gain on sale of
Urban & Vogel of $2,485 in 1994 316 2,756 (409)
--------- ---------- ----------
Income (loss) from continuing operations 5,305 4,888 (2,615)
Discontinued printing operations:
Earnings from printing operations, net of
income tax expense of $1,016 - - 1,660
Loss on sale of printing operations, net of
income tax benefit of $139 and $645, respectively - (228) (1,053)
---------- ---------- ---------
Net income (loss) $ 5,305 $ 4,660 $ (2,008)
====================================================================================
Earnings (loss) per common share:
Income (loss) from continuing operations $ 1.15 $ 1.12 $ (0.60)
Discontinued printing operations:
Earnings from printing operations, net of
income taxes - - 0.38
Loss on sale of printing operations, net of
income tax benefit - (0.05) (0.24)
--------- ---------- ---------
Net income (loss) $ 1.15 $ 1.07 $ (0.46)
=====================================================================================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
Page 17 of 46
<PAGE>
<TABLE>
Waverly, Inc.
Consolidated Statements of Shareholders Equity
(in thousands of dollars except per share amounts)
<CAPTION>
For the three years ended December 31, 1995
- -------------------------------------------
Additional Currency
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment Total
------ ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 8,662 $ 10,008 $ 25,832 $ 123 $ 44,625
Net loss (2,008) (2,008)
Cash dividends $.44 per share (1,907) (1,907)
Exercise of stock options 37 240 277
Common stock issued for director fees 4 36 40
Foreign currency translation adjustment (729) (729)
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,703 10,284 21,917 (606) 40,298
Net income 4,660 4,660
Cash dividends $.44 per share (1,918) (1,918)
Exercise of stock options 34 272 306
Common stock issued for director fees 4 39 43
Foreign currency translation adjustment 1,055 1,055
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,741 10,595 24,659 449 44,444
Net income 5,305 5,305
Cash dividends $.47 per share (2,081) (2,081)
Exercise of stock options 122 937 1,059
Common stock issued for director fees 3 47 50
Tax benefits related to exercise of stock
options 364 364
Foreign currency translation adjustment 755 755
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 8,866 $ 11,943 $ 27,883 $ 1,204 $ 49,896
================================================================================================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
Page 18 of 46
<PAGE>
<TABLE>
Waverly, Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
<CAPTION>
For the year ended December 31, 1995 1994 1993
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 5,305 $4,660 $(2,008)
Adjustments to reconcile net income (loss) to
net cash from operating activities
Discontinued printing operations - 228 (607)
Postretirement benefit obligation 256 386 722
Equity in the (earnings) losses of affiliated entities,
including net gain on sale of Urban & Vogel of $2,485 in 1994 (316) (2,756) 409
Depreciation and amortization 5,292 4,479 4,108
Deferred income taxes 2,229 (979) (956)
Net periodic pension credit (788) (659) (231)
Write-down of property and equipment 71 - 1,700
Change in assets and liabilities, adjusted for
the effect of acquisitions
Accounts receivable (3,098) 266 (3,936)
Inventories (7,173) (1,786) (326)
Prepaid expenses 36 1,134 (539)
Accounts payable 1,749 (1,850) 2,836
Accrued expenses (1,522) 391 3,501
Income taxes payable (193) 3,578 -
Royalties payable 1,541 1,218 73
Unearned subscription revenues (2,618) (725) 307
Other long-term liabilities 175 - -
- --------------------------------------------------------------------------------------------
Net cash provided by continuing operations 946 7,585 5,053
Net cash (used in) discontinued printing operations - - (1,011)
- --------------------------------------------------------------------------------------------
Net cash provided by operations 946 7,585 4,042
- --------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of Urban & Vogel - 4,202 -
Proceeds from sale of discontinued operations 1,000 2,903 14,500
Purchase of property and equipment (4,862) (3,481) (1,332)
Acquisition of businesses and publishing properties (6,269) (4,751) (3,477)
Capitalized electronic product development costs (1,396) (1,411) (1,172)
Decrease (increase) in investments in affiliated entities 310 431 (122)
Proceeds from sale of marketable securities 10,312 16,900 8,500
Purchases of marketable securities (1,000) (15,032) (14,650)
- --------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities (1,905) (239) 2,247
- --------------------------------------------------------------------------------------------
Cash flows from financing activities
Net borrowings (payments) under short-term lines of credit (960) (386) 215
Proceeds from issuances of long-term debt - 1,300 -
Repayment of long-term debt (2,278) (2,446) (1,411)
Common stock dividends paid (2,081) (1,918) (1,907)
Proceeds from exercise of stock options 1,059 306 277
- --------------------------------------------------------------------------------------------
Net cash flows (used in) financing activities (4,260) (3,144) (2,826)
Page 19 of 46
<PAGE>
Net increase (decrease) in cash and cash equivalents (5,219) 4,202 3,463
Effect of exchange rates on cash and cash equivalents 197 13 (65)
Cash and cash equivalents beginning of year 9,602 5,387 1,989
- --------------------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 4,580 $ 9,602 $ 5,387
============================================================================================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
Note 1 Business Operations
- ---------------------------
Waverly and its subsidiaries (the Company) are worldwide
publishers of print and electronic media in the fields of
medicine, allied health, and related health care disciplines.
Products are distributed worldwide and the Company has operating
offices in the United States and foreign locations.
Note 2 Summary of Significant Accounting Policies
- -------------------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. Three of the
Company's majority-owned subsidiaries have a November 30 year
end. Investments in companies where Waverly has less than a 50%
interest but can exercise significant influence are accounted
for under the equity method. All material intercompany accounts
and transactions have been eliminated in consolidation. All
acquisitions of business and publishing properties have been
accounted for using the purchase method of accounting.
Accounting Estimates
--------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
Reclassifications
------------------
Certain amounts in the prior years consolidated financial
statements have been reclassified to conform to the current
years presentation, and discontinued operations have been
separately identified for all periods presented.
Revenue Recognition
-------------------
Sales include the publication of books and periodicals for which
sales and related cost of sales are recognized when the book or
periodical issue is shipped to the customer. Over-copies of a
periodical issue are carried in inventory at no cost since the
entire manufacturing cost of a periodical issue is charged to
cost of sales when the issue is shipped. Subscription payments
received are deferred and recorded as income in the period in
which the related issue is shipped.
Page 20 of 46
<PAGE>
Cash Equivalents
----------------
Cash equivalents consist of all highly liquid instruments with
original maturities of three months or less. The cost of these
investments is equivalent to fair value.
Investments in Marketable Securities
------------------------------------
The Company has invested its excess cash generally in
short-term, highly liquid municipal instruments that are highly
rated. The Company's securities are held for an unspecified
period of time and may be sold to meet liquidity needs. The
securities included as cash equivalents and marketable
securities are considered as available-for-sale as defined by
Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities. Amortized costs of
marketable securities approximates market, therefore, no adjustment has been
made to shareholders equity as a result of changes in market value to
these securities.
Inventories
-----------
Inventories are valued at the lower of cost or market. Two
methods of determining costs are used: last-in, first-out (LIFO)
for domestic inventories and first-in, first-out (FIFO) for
foreign inventories. Such costs include raw materials and
subcontract composition and printing.
Property and Equipment
----------------------
Property and equipment are stated at cost. Expenditures for
repairs and maintenance are expensed as incurred. The cost and
accumulated depreciation applicable to assets retired or sold
are removed from the respective accounts, and gains or losses
are included in the determination of income.
Depreciation is computed by the straight-line method based on
the estimated service lives of the assets. Service lives range
from 10 to 35 years for buildings and improvements and from 2 to
10 years for computers, software, and equipment. Depreciation
charged to operations amounted to $2,296,000, $2,112,000, and
$1,897,000, for 1995, 1994, and 1993, respectively.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and Assets to Be Disposed Of,
effective January 1, 1996. The standard requires the Company to
review long-lived assets for the impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Adoption of this statement is not
expected to have a material impact on the Company's financial
statements.
Investment in Affiliated Entities
---------------------------------
The Company has noncontrolling equity interests in various
affiliated entities. The equity method of accounting is used for
these investments.
Page 21 of 46
<PAGE>
Electronic Product Development Costs
------------------------------------
Electronic product development costs are capitalized when
incurred. Capitalization of electronic product development costs
begins upon the establishment of product feasibility. The
establishment of product feasibility and the ongoing assessment
of recoverability of capitalized electronic product development
costs require considerable judgment by management with respect
to certain external factors, including, but not limited to,
anticipated future revenues, estimated useful life and changes
in technology.
Amortization of capitalized electronic product development costs
is provided on a product-by-product basis using the
straight-line method over the estimated useful life of the
product. Amortization charged to operations amounted to
$802,000, $761,000, and $558,000, for 1995, 1994, and 1993,
respectively.
Intangible Assets and Goodwill
------------------------------
Subscription lists and noncompete agreements arising from
acquisitions are amortized on a straight-line basis over their
estimated useful lives, periods ranging from 5 to 10 years.
Amortization charged to operations amounted to $310,000,
$332,000, and $460,000, for 1995, 1994, and 1993, respectively.
Publication agreements represent the fair value of the rights to
publish certain valuable publication titles acquired outright
and in business combinations. The agreements are amortized on a
straight-line basis over the periods benefitted, ranging from 10
to 40 years. Amortization charged to operations amounted to
$1,456,000, $1,114,000, and $1,020,000, for 1995, 1994, and
1993, respectively.
Goodwill represents the cost in excess of fair value of the net
tangible and identifiable intangible assets of companies
acquired in business combinations. Goodwill is amortized on a
straight-line basis over the periods benefitted not exceeding 40
years. Amortization charged to operations amounted to $318,000,
$143,000, and $149,000, for 1995, 1994, and 1993, respectively.
The recoverability of publication agreements, goodwill, and
other intangible assets is assessed periodically and whenever
adverse events or changes in circumstances or business climate
indicate that previously anticipated cash flows warrant a
reassessment. When such reassessments indicate the potential of
impairment, all business factors are considered and, if such
assets are not likely to be recovered from future operating cash
flows, they are written down to recoverable value for financial
reporting purposes.
Concentrations of Business Risk
-------------------------------
Other than accounts receivable from major U.S. medical book
distributors, which amounted to $11,175,000 and $9,369,000 at
December 31, 1995 and 1994, respectively, the Company is not
subject to any significant credit risk from concentrations of
receivables or other assets in a particular customer group or
industry segment. The Company's products and services are used
generally by health care professionals and professional
societies throughout the world. In conjunction with the 1993
sale of the Printing Division, the Company entered into a
long-term
Page 22 of 46
<PAGE>
contract with the purchaser to provide a substantial portion of
all printing services for its periodicals. Such services are
performed at two separate facilities. The Company believes that,
in the event of disruption of services, work in progress could
be transferred to other facilities without lengthy interruption
of production.
Earnings (Loss) Per Common Share
--------------------------------
The computation of earnings (loss) per common share in each year
is based on the weighted average number of common shares
outstanding. When dilutive, stock options are included as share
equivalents using the treasury stock method. The number of
weighted average shares used in computing the earnings (loss)
per share was 4,622,647, 4,359,653, and 4,337,498, for 1995,
1994, and 1993, respectively. Earnings (losses) assuming full
dilution were not significantly different from the primary
amounts.
Income Taxes
------------
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets
and liabilities.
Foreign Currency
----------------
The assets and liabilities of the Company's foreign subsidiaries
whose functional currencies are other than the U.S. dollar are
translated at current rates of exchange. Income and expense
items are translated at the weighted average exchange rate for the
year. The resulting foreign currency translation adjustments are
recorded directly into the foreign currency translation
component of shareholders equity. Gains and losses from
transactions denominated in foreign currencies are reflected in
operations.
Note 3 Investments in Affiliated Entities
- ------------------------------------------
The Company has noncontrolling interests in various affiliated
entities. The more significant investments are in Japan,
Australia, and Germany.
Effective October 26, 1994, the Company sold its interest in
Urban & Vogel GmbH (U&V), a 48%-owned publisher of
advertising-supported medical journals. As a result of this
sale, the Company recorded a gain of $2,485,000, net of tax. The
Company's equity in the losses of U&V for the period up to the
effective date of the sale has been recorded in the equity in
the earnings (losses) from the affiliated entities portion of
the Consolidated Statements of Operations.
Page 23 of 46
<PAGE>
Equity in the earnings (losses) of affiliated entities consists
of the following:
(in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Equity in earnings (loss)
Verlegerdienst Mnchen
(Germany) $ 215 $ 309 $ 146
Mosby-Williams & Wilkins
Pty., Ltd. (Australia) 37 54 (12)
Igaku-Shoin MYW, Ltd.
(Japan) 100 77 12
Waverly Hispanica S.A.
(Argentina) 25 125 15
Info-Med Ltd. (Hong Kong) - 15 -
Quality Medical Publishing
(United States) (61) (11) (168)
- -----------------------------------------------------------------------------
Subtotal 316 569 (7)
Urban & Vogel (Germany)
Operational (losses) - (298) (402)
Gain on sale - 2,485 -
- -----------------------------------------------------------------------------
Total equity in earnings (loss) $ 316 $ 2,756 $(409)
=============================================================================
Note 4 Intangible Assets
- -------------------------
Intangible assets are stated at cost net of accumulated
amortization and consisted of the following at December 31:
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
Goodwill $ 9,083 $ 6,717
Publication agreements 15,698 13,758
Subscription lists and
noncompete agreements 1,351 1,359
- -----------------------------------------------------------------------------
Total $ 26,132 $ 21,834
=============================================================================
Note 5 Restructuring and Facility Relocation Charges
- -----------------------------------------------------
During 1993, management decided to strategically consolidate
certain functions within the publishing and corporate operations
that resulted in a reduced workforce and to relocate its
facilities. Accordingly, the Company incurred a one-time charge
to operations of $3,572,000 primarily related to employee
separation costs and disposition of previously owned facilities.
The unpaid portion of these charges amounted to $534,000 and
$858,000 at December 31, 1995 and 1994, respectively. The
balance at December 31, 1995 consists of employee separation
agreements to be paid through the year 2000.
Page 24 of 46
<PAGE>
Note 6 Inventory
- ---------------------
Inventories at December 31 consist of the following:
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
Finished goods $ 23,852 $ 17,464
Work-in-process 7,296 6,067
Raw materials 383 390
- -----------------------------------------------------------------------------
$ 31,531 $ 23,921
=============================================================================
If the FIFO method of inventory had been used by the Company for
domestic inventory, the carrying value would have been $49,000
higher than reported at December 31, 1995 and $342,000 lower
than reported at December 31, 1994.
The Company regularly reviews its medical book inventories on a
title-by-title basis for salability. The cost of those books
determined to have impaired or no sales value is charged to
income in the period of determination. Charges to income
amounted to $2,422,000, $2,105,000, and $2,037,000, for 1995,
1994, and 1993, respectively.
Note 7 Debt
- ------------
The Company maintains uncollateralized lines of credit borrowing
arrangements of $39,000,000 with various banks. In 1995,
interest rates under these agreements ranged from 7.1% to 7.5%.
At December 31, 1995 and 1994, unused bank lines of credit
amounted to approximately $38,800,000 and $37,840,000,
respectively. There are no compensatory balance arrangements or
commitment fees in connection with these arrangements.
Long-term debt at December 31 consists of the following:
(in thousands) 1995 1994
- -----------------------------------------------------------------------------
Term loans $7,366 $9,651
Related party note 8% 104 97
- -----------------------------------------------------------------------------
7,470 9,748
Less current maturities (3,790) (2,400)
- -----------------------------------------------------------------------------
Long-term debt $3,680 $7,348
=============================================================================
The Company has an uncollateralized senior term loan with a
lending institution that requires quarterly interest payments at
an interest rate of 9.09% per annum. The principal is payable in
ten semiannual payments of $1,200,000, which started in
September 1993. The provisions of the financing agreement
include restrictions, without prior written consent, to incur
additional borrowings, sell assets, pay cash dividends,
repurchase the Company's common stock, and enter into a merger
or consolidation with another company. In addition, the
financing agreement includes prepayment penalties. The Company's
German subsidiary has a loan of $1,390,000 with a
lending institution at an annual rate of 5.9%. The loan is
collateralized by Company-owned real estate with a fair market
value in excess of the principal. The loan is due to be paid in
one installment on December 31, 1996. Estimated fair values of
debt obligations approximate the carrying value at December 31,
1995 and 1994, respectively.
Page 25 of 46
<PAGE>
The related party note of $104,000 is due upon notice of one
year. Long-term debt maturities, not including the related party
note, in each of the three years subsequent to December 31,
1995, are $3,790,000 in 1996, $2,400,000 in 1997, and $1,200,000
in 1998.
The Company guarantees various lines of credit not to exceed $400,000 for the
affiliate, Mosby-Williams & Wilkins Pty., Ltd.
Cash outflows from operating activities include interest paid of
$1,201,000, $1,197,000, and $1,377,000, for 1995, 1994, and
1993, respectively.
Note 8 Income Taxes
- --------------------------
Pretax income (loss) from continuing operations for the years
ended December 31 was taxed under the following jurisdictions:
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------
Domestic $ 5,223 $ 2,753 $ (3,388)
Foreign 2,327 529 (339)
- ---------------------------------------------------------------
Total $ 7,550 $ 3,282 $ (3,727)
===============================================================
The provision (benefit) for income taxes charged to continuing
operations is presented below:
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------
Current provision
U.S. Federal $ 843 $ 1,299 $ (418)
State 161 247 (117)
Foreign (8) 583 (30)
- ----------------------------------------------------------------
Total current 996 2,129 (565)
================================================================
Deferred provision
U.S. Federal 326 (981) (826)
State 94 (185) (62)
Foreign 1,145 187 (68)
- ----------------------------------------------------------------
Total deferred 1,565 (979) (956)
- ----------------------------------------------------------------
Income tax expense (benefit) $ 2,561 $ 1,150 $ (1,521)
================================================================
Page 26 of 46
<PAGE>
Deferred tax assets (liabilities) arising from differences in
accounting methods for book and tax purposes at December 31
consist of the following:
Domestic
- --------
(in thousands) 1995 1994
- ----------------------------------------------------------------
Postretirement obligation $ 4,443 $ 4,345
Inventory related 1,377 1,281
Depreciation 187 998
Printing Division sale 369 318
Asset provisions 506 457
NOL benefits 637 -
Group insurance 139 128
IRS settlements 486 524
Contributions 441 322
Other, net 387 582
- ----------------------------------------------------------------
Gross deferred tax assets 8,972 8,955
- ----------------------------------------------------------------
Prepaid pension (2,175) (1,847)
Excess of tax over book amortization (364) (465)
Other, net (20) (107)
- ----------------------------------------------------------------
Gross deferred tax liabilities (2,559) (2,419)
- ----------------------------------------------------------------
Net deferred tax asset $ 6,413 $ 6,536
================================================================
Foreign
- -------
(in thousands) 1995 1994
- ---------------------------------------------------------------
Pension liability $114 $ 122
- ---------------------------------------------------------------
Gross deferred tax assets 114 122
- ---------------------------------------------------------------
Excess of tax over book amortization (1,816) (1,535)
U&V gain (1,135) -
Inventory related (741) (829)
Undistributed profits (328) -
Book return provision (122) (126)
- ----------------------------------------------------------------
Gross deferred tax liabilities (4,142) (2,490)
- ----------------------------------------------------------------
Net deferred tax liability $(4,028) $ (2,368)
================================================================
The measurement of tax assets and liabilities at December 31 of
each year reflects movements in temporary differences and
foreign currency translation adjustments. The net deferred tax
asset related to U.S. operations is considered to meet the test
of recoverability under FAS 109.
Set forth below is a reconciliation from the applicable U.S.
federal statutory tax expense (benefit) to the effective tax
rate for the years ended December 31:
Page 27 of 46
<PAGE>
(in thousands) 1995 1994 1993
- --------------------------------------------------------------
U.S. Federal statutory
tax expense (benefit): $ 2,567 $ 1,116 $ (1,267)
Increase (decrease) in
tax rate resulting from
state income taxes, net
of federal tax benefit 79 181 (118)
Effect of foreign taxes 346 345 129
Foreign sales corporation
tax benefit (287) (268) (133)
Contributions (37) (53) (178)
Other, net (107) (171) 46
- --------------------------------------------------------------
Income tax expense (benefit) $ 2,561 $ 1,150 $ (1,521)
==============================================================
Effective tax rate 33.9% 35.0% (40.8%)
==============================================================
No deferred taxes have been provided on the cumulative
undistributed earnings of foreign subsidiaries and
unconsolidated affiliated entities, as such amounts would not
result in any additional U.S. income taxes because of available
foreign tax credits.
The income tax benefit related to the exercise of stock options
reduces taxes currently payable and is credited to additional
paid-in capital. The amount approximated $364,000 for 1995.
Cash outflows from operating activities include income taxes
paid of $603,000, $1,434,000, and $3,027,000, for 1995, 1994,
and 1993, respectively.
Note 9 Employee Benefit Plans
- ------------------------------
Funded Pension Plan
-------------------
The Company has a defined benefit pension plan covering
substantially all U.S. employees. Plan benefits are determined
using a career average earnings formula. The Company's funding
policy is to contribute the amount necessary to insure that plan
assets meet current plan obligations. The projected benefit
obligations at December 31, 1995, 1994, and 1993 were determined
using assumed weighted average discount rates of 7.0%, 8.9%, and
7.0%, respectively. The assumed long-term rate of compensation
increase is 5.5% for 1995, 5.5% for 1994, and 6.0% for 1993. The
assumed long-term rate of return on plan assets is 9% per year
for all periods presented. Mortality rates and turnover rates
were applied based on appropriate statistical tables and
applicable Company experience. A summary of cost components
included in the net periodic pension credit and the funded
status of the plan for the years ended December 31 is presented
as follows:
Page 28 of 46
<PAGE>
(in thousands) 1995 1994 1993
- -------------------------------------------------------------
Service cost benefits earned
for the period $ 269 $ 412 $ 623
Interest cost on projected
benefit obligation 1,697 1,735 1,706
Amortization of loss and
prior service cost (12) 213 181
Return on plan assets (2,062) (2,335) (2,056)
Amortization of unrecog-
nized net gain at date of
initial application of FAS 87 (680) (684) (684)
- --------------------------------------------------------------
Net periodic pension credit $ (788) $(659) $ (230)
==============================================================
The funded status of the plan at December 31 is presented below:
(in thousands) 1995 1994 1993
- --------------------------------------------------------------
Actuarial present value of:
Vested benefit
obligation $(24,249) $(18,737) $(20,852)
Nonvested benefit
obligation (385) (231) (332)
- --------------------------------------------------------------
Accumulated benefit
obligation (24,634) (18,968) (21,184)
Effect of projected
actuarial increases (1,821) (1,410) (2,137)
- --------------------------------------------------------------
Actuarial present
value of projected
benefit obligation (26,455) (20,378) (23,321)
Market value of plan
assets at end of period 27,404 23,689 26,588
- --------------------------------------------------------------
Excess of plan assets
over liabilities 949 3,311 3,267
Unamortized net gain
at date of initial
application of FAS 87 - (680) (1,364)
Unrecognized net loss 5,018 2,548 2,617
- --------------------------------------------------------------
Prepaid pension expense $5,967 $5,179 $4,520
==============================================================
Unfunded Pension Obligation
---------------------------
Urban & Schwarzenberg provides supplementary retirement benefits
to three current and fifteen former employees. Such benefits are
payable monthly upon retirement at specified percentages of the
retirees highest achieved salary level. Upon the retirees death,
his or her spouse or other specified beneficiaries are entitled
to receive additional benefit payments. The actuarial present
value of such unfunded pension obligations is computed using an
interest rate of 7% per annum. The charge to income for 1995,
1994, and 1993 was $393,000, $242,000, and $203,000,
respectively.
Page 29 of 46
<PAGE>
Savings Plan
------------
The Company offers an employee savings plan qualifying under
Section 401(k) of the Internal Revenue Code. The Plan covers
substantially all U.S. employees with more than one year's
service. Employees are encouraged to make contributions to the
Plan. The Company will match 25% of such contributions up to a
maximum employee contribution of 6% of annual salary. In
addition, the Company, from time to time, may at its discretion
provide additional contributions to the Plan. The Company
incurred expenses of $207,000, $203,000, and $332,000, in 1995,
1994, and 1993, respectively.
Postretirement Benefits
-----------------------
The Company provides certain health care benefits for retired
employees. Substantially all of the Company's U.S. retirees and
full-time employees are or become eligible for these benefits if
they meet minimum age and service requirements. The cost of
providing most of these benefits has been shared with retirees
in differing proportions based on length of service and
retirement date. Currently, this plan is unfunded and the
Company has no immediate plans for funding the liabilities;
however, the Company will continue to pay for retiree medical
claims incurred, which were $409,000, $445,000, and $463,000, in 1995,
1994, and 1993, respectively. The effect of curtailment due to the Printing
Division sale in 1993 was to increase the liability by $247,000.
Summary information on the Company's postretirement benefit plan
at December 31, 1995, and 1994, is presented below:
Accumulated postretirement benefit obligation:
(in thousands) 1995 1994
- --------------------------------------------------------------
Retirees $ 6,406 $ 6,266
Fully eligible, active plan
participants 5,285 5,169
- --------------------------------------------------------------
Accrued postretirement
benefit obligation $ 11,691 $ 11,435
==============================================================
Net periodic postretirement benefit cost included the following
components for the years ended December 31:
(in thousands) 1995 1994 1993
- -------------------------------------------------------------
Service cost of benefit earned $ 37 $ 46 $ 145
Interest cost on accumulated
postretirement benefit
obligation 785 766 805
Effect of Printing
Division curtailment - - 247
Plan fees - 6 13
Unrecognized net actuarial gain (157) - -
- --------------------------------------------------------------
Net periodic postretirement
benefit cost $665 $818 $1,210
==============================================================
Page 30 of 46
<PAGE>
The assumed weighted average discount rate used in determining
the accumulated postretirement benefit obligation (APBO) was
7.6%, 8.9%, and 7.8% in 1995, 1994, and 1993, respectively. The
assumed health care inflation rate used in measuring the APBO
was 11% in year one, declining gradually to 5% in the sixth year
and thereafter.
If the health care cost trend rate assumption were increased by
1%, the APBO as of December 31, 1995, would be increased by
approximately $591,000. The cost effect of this change on the
sum of the service cost and interest cost components of net
periodic postretirement benefit cost for 1995 would be an
increase of approximately $43,000.
Note 10 Incentive Plans
- -----------------------
The Company has an incentive plan for virtually all employees
under which the amount available for bonuses is based on
achievement of profit targets and individual performance goals.
Compensation earned under the Plan was $1,350,000, $1,250,000,
and $157,000, for 1995, 1994, and 1993, respectively.
The Company has two stock option plans at December 31, 1995: the
1984 Employee Stock Option Plan and the 1995 Employee Stock
Option Plan. Options can no longer be granted under the 1984
plan.
Stock options granted under the 1984 plan which are outstanding
at December 31, 1995 are 50% exercisable one year after the date
of the grant, 75% exercisable two years after the grant date,
and exercisable in full on the third anniversary of the grant
date. The options expire on the tenth anniversary of the grant
date.
The 1995 plan provides for the grant of Incentive Stock Options
and nonqualified options for up to 750,000 shares of common
stock through January 2005. Options granted vest ratably over
four years. There are 693,100 options available to grant at
December 31, 1995. The options expire on the tenth anniversary
of the grant date. The table below summarizes the transactions.
Page 31 of 46
<PAGE>
Number of Shares
Stock Options 1995 1994 1993
- ----------------------------------------------------------------
Outstanding
at January 1, 463,701 430,351 386,826
Granted 56,900 61,400 83,350
Exercised (60,922) (16,900) (18,163)
Surrendered (2,626) (11,150) (21,662)
- ----------------------------------------------------------------
Outstanding
at December 31, 457,053 463,701 430,351
- ----------------------------------------------------------------
Exercisable
at December 31, 339,078 330,751 271,721
- ----------------------------------------------------------------
Options price per share
Granted $28.50 $18.50 $23.00
Exercised/surrendered $13.00 $17.00 $14.25
to to to
$39.13 $25.75 $24.00
Outstanding $13.00 $13.00 $13.00
at December 31, to to to
$28.50 $24.00 $24.00
================================================================
In October 1995, the FASB issued Statement of Financial
Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. SFAS 123, which is effective for fiscal years
beginning after December 15, 1995, establishes financial
accounting and reporting standards for stock-based employee
compensation plans and for transactions in which an entity
issues its equity instruments to acquire goods and services from
nonemployees. SFAS 123 requires, among other things, that
compensation cost be calculated for fixed stock options at the
grant date by determining fair value using an option-pricing
model. The Company has the option of recognizing the
compensation cost over the vesting period as an expense in the
income statement or making pro forma disclosures in the notes to
the financial statements as to the effects on net income as if
the compensation cost had been recognized in the income
statement. The Company will adopt the pro forma disclosure
provisions of SFAS 123 at the beginning of fiscal year 1996.
Note 11 Business and
Publishing Property Acquisitions
- -----------------------------------------
1995 Activity:
---------------
On December 11, 1995, the Company acquired the publication right
to Medical Toxicology, for cash of approximately $1.2 million,
to be amortized using the straight-line method over 15 years.
Medical Toxicology is a leading reference book on this subject
and was first published in 1987.
On June 2, 1995, the Company acquired 100% of the outstanding
shares of common stock of the de'Medici Systems, Inc., for cash
of approximately $2.2 million. Purchase price is allocated as
follows: $940,000 to publishing agreements, $703,000 to
goodwill, and $557,000 to net assets. Intangible assets will be
amortized using the straight-line method over 10 years.
de'Medici
Page 32 of 46
<PAGE>
develops and distributes a self-contained computerized learning
workstation used for training personnel in health care
facilities.
On April 3, 1995, the Company's German subsidiary, Urban &
Schwarzenberg, Verlag fur Medizin, GmbH, acquired the
publication rights of Mediscript, for approximately $1.0
million, to be amortized using the straight-line method over 15
years. Mediscript is a leading medical test preparation series
in Germany.
On March 31, 1995, the Company acquired the remaining 80% of the
stock of Info-Med, Ltd., located in Hong Kong, for cash of
approximately $1.35 million. Purchase price is allocated as
follows: $1.1 million to goodwill and $250,000 to net assets.
Goodwill will be amortized using the straight-line method over
25 years. Info-Med, Ltd. is a distributor of medical books to
Southeast Asia.
1994 Activity:
--------------
On December 6, 1994, the Company acquired 100% of the stock of
the Betz Publishing Company (Betz), located in Rockville, MD,
for cash of approximately $2.2 million. Purchase price is
allocated as follows: $758,000 to publishing agreements, $1.4
million to goodwill, and $42,000 to net assets. Intangible
assets will be amortized using the straight-line method over 15
years. Betz publishes the leading students medical entrance test
preparation manuals and similar manuals in pharmacy, dentistry,
veterinary medicine, and allied health.
During December 1994, the Company, through its wholly owned
German subsidiary Urban & Schwarzenberg, acquired 100% interest
in Muller & Steinicke GmbH, a medical bookstore in Munich,
Germany, for approximately $200,000. In a separate transaction,
U&S acquired certain medical book titles for $1.0 million. These
titles are amortized using the straight-line method over 15
years.
During the year, the Company acquired various electronic media,
book, and periodical publishing properties for a total cash
outlay of approximately $1.4 million. These properties are being
amortized using the straight-line method over 10 to 15 years.
Note 12 Related Party Transactions
- ----------------------------------
The Company made payments of $90,000, $86,000, and $319,000, in
1995, 1994, and 1993, respectively, to a member of the Board of
Directors for financial advisory services related to
acquisitions and development.
Note 13 Commitments and Contingencies
- --------------------------------------
The Company leases office facilities and equipment under
noncancelable operating leases. Related rent expense was
$1,731,000, $1,164,000, and $1,118,000, for 1995, 1994, and
1993, respectively. Future minimum rental lease payments under
these lease agreements aggregate $2,119,000 in 1996, $1,967,000
in 1997, $1,972,000 in 1998, $1,963,000 in 1999, $1,849,000 in
2000, and $5,731,000 thereafter.
Page 33 of 46
<PAGE>
The Company has entered into an agreement to sublet a portion of
its leased office property through 2000. Related rental income
was $197,000 in 1995. Future minimum rental income under this
sublease agreement aggregates $237,000 in 1996, $237,000 in
1997, $237,000 in 1998, $237,000 in 1999, and $39,000 in 2000.
In conjunction with the sale of its Printing Division, the
Company retained environmental obligations related to the
Easton, Maryland printing facility. A study has been conducted
to determine the extent of any contamination at the site,
identify various alternatives for remediation, and recommend
remedial action, if necessary. Based upon information available
at this time, the cost is not expected to exceed $450,000 and
could be lower. The Company has accrued the $450,000 in expected
cost and as of December 31, 1995 has incurred $138,000 in costs.
The remaining balance of $312,000 is recorded in accrued
expenses on the December 31, 1995 balance sheet.
Note 14 Revenues by Geographic Areas
- -------------------------------------
Revenues by geographic area for the years ended December 31 are
presented below:
(in thousands) 1995 1994 1993
- --------------------------------------------------------------
United States $ 88,567 $ 75,955 $ 73,631
Europe 54,176 43,484 36,478
Asia 6,695 5,965 5,492
North America
(excluding U.S.) 3,167 3,141 3,051
Australia 1,394 1,380 1,224
South America 1,684 1,485 1,361
Africa 395 504 447
- ---------------------------------------------------------------
Total $156,078 $ 131,914 $ 121,684
===============================================================
Revenues are composed of sales to unaffiliated customers, as
reported in the Company's consolidated income statement. No
single customer accounted for 10% or more of net sales.
Revenues for 1995, 1994, and 1993 include German-based revenues
of $40,000,000, $29,800,000, and $24,900,000, income from
operations of $2,300,000, $762,000, and $43,000, and
identifiable assets of $32,700,000, $28,900,000, and
$23,900,000, respectively.
Page 34 of 46
<PAGE>
Note 15 Financial Information by Quarter (Unaudited)
- -----------------------------------------------------
(in thousands of dollars except per share data) 1995 1994
- --------------------------------------------------------------------------
Revenues
First quarter $ 34,702 $ 28,770
Second quarter 39,220 34,403
Third quarter 33,763 32,631
Fourth quarter 48,393 36,110
- --------------------------------------------------------------------------
Full Year $156,078 $131,914
- --------------------------------------------------------------------------
Operating Income (Loss)
First quarter $ 739 $ 112
Second quarter 3,204 1,722
Third quarter 1,106 1,044
Fourth quarter 2,347 278
- --------------------------------------------------------------------------
Full Year $ 7,396 $ 3,156
- --------------------------------------------------------------------------
Net Income
First quarter $ 962 $ 520
Second quarter 2,094 1,242
Third quarter 595 303
Fourth quarter1 1,654 2,595
- --------------------------------------------------------------------------
Full Year $ 5,305 $ 4,660
- --------------------------------------------------------------------------
Primary Earnings Per Common Share
First quarter $ 0.22 $ 0.12
Second quarter 0.47 0.29
Third quarter 0.10 0.06
Fourth quarter 1 0.36 0.60
- --------------------------------------------------------------------------
Full Year $ 1.15 $ 1.07
==========================================================================
1 Includes after-tax gain of $2,485 on sale of Urban & Vogel,
equal to $.57 per share in 1994.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
- --------------------------------------------------------
On July 24, 1995, the Company replaced Price Waterhouse LLP
with Coopers & Lybrand L.L.P. as the Company's independent
accountant. The Audit Committee of the Company's Board of
Directors approved the selection of Coopers & Lybrand L.L.P. as
the Company's new accountant and the replacement of Price
Waterhouse LLP.
During the two most recent fiscal years and interim periods
through July 24, 1995, there were no disagreements with Price
Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosures, or auditing scope or
procedure or any reportable events.
Price Waterhouse LLP's report for the past two years contained
no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or
accounting principles.
Page 35 of 46
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
Information with respect to Directors is incorporated herein by
reference to the information under the caption "Election of Directors"
from the Registrant's definitive proxy statement for
the 1996 annual meeting of shareholders, copies of which have been
filed with the Securities and Exchange Commission. See Item 1,
above, for information concerning Executive Officers.
Item 11. Executive Compensation
- --------------------------------
Incorporated herein by reference to the information under the caption
"Executive Compensation" from the Registrant's
definitive proxy statement for the 1996 annual meeting of
shareholders, copies of which have been filed with the
Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
- -----------------------------------------------------------
Incorporated herein by reference to the information under the caption
"Committees of the Board" from the Registrant's
definitive proxy statement for the 1996 annual meeting of
shareholders, copies of which have been filed with the
Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Incorporated herein by reference to the information under the caption
"Certain Transactions" from the Registrant's
definitive proxy statement for the 1996 annual meeting of
shareholders, copies of which have been filed with the
Securities and Exchange Commission.
Page 36 of 46
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
- ---------------------------------------------------------------
(a) The following documents are filed as part of this report: Page
--------------------------------------------------------- ----
(1) Financial Statements:
---------------------
Report of Independent Accountants 14
Consolidated Balance Sheets at December 31, 1995 and 1994 15
Consolidated Statements of Operations for the three years
ended December 31, 1995 17
Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 1995 18
Consolidated Statements of Cash Flows for the three years
ended December 31, 1995 19
Notes to Consolidated Financial Statements 20
(2) Financial Statement Schedules:
------------------------------
Report of Independent Accountants on Financial Statement
Schedule 38
Schedule II - Valuation and Qualifying Accounts and Reserves 38
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(3) Exhibits
--------
See the Exhibit Index" on page 40
(b) Reports on Form 8-K The Registrant was not required to
file any report on Form 8-K for the fourth quarter of 1995.
Page 37 of 46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of Waverly, Inc.
Our report on the consolidated financial statements of Waverly,
Inc. and subsidiaries has been included in this Annual Report on
Form 10-K. In connection with our audit of such financial
statements, we have also audited the related financial statement
schedule listed in the index in Item 14 of this Form 10-K. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
February 1, 1996
Schedule II
<TABLE>
Valuation and Qualifying Accounts and Reserves
----------------------------------------------
<CAPTION>
Deductions:
Amounts
Balance at Additions: Charged off
Beginning of Charged to Less Balance at End
Classification Year Income Recoveries of Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31,
1993, Allowance for
doubtful accounts $ 675 $ 261 $ 206 $ 730
Year ended December 31,
1994, Allowance for
doubtful accounts $ 730 $ 1,161 $ 1,145 $ 746
Year ended December 31,
1995, Allowance for
doubtful accounts $ 746 $ 841 $ 791 $ 796
</TABLE>
Page 38 of 46
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Waverly, Inc.
By: /s/ Edward B. Hutton, Jr.
----------------------------------
Edward B. Hutton, Jr.
President, Chief Executive Officer
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By: /s/ Edward B. Hutton, Jr.
--------------------------------
Director, President and Chief
Executive Officer
(Principal Officer)
Dated: March 29, 1996
By: /s/ E. Philip Hanlon
----------------------------
E. Philip Hanlon
Vice President, Treasurer,
Chief Financial Officer
Dated: March 29, 1996
Majority of Board of Directors:
Barbara J. Bonnell, David J.Callard, Donald W. Dick, Jr.,
Edward B. Hutton, Jr., MichaelM. E. Johns, Samuel G. MacFarlane,
Carolyn Manuszak, Ackneil M. Muldrow, II, Joseph M. Palazzolo,
Edward M. Passano, Sr., E. Magruder Passano, Jr., William M. Passano, Jr.,
Richard C. Riggs, Jr., John F. Spahr, Jr., Oliver S. Travers,
Michael Urban.
By: /s/ E. Philip Hanlon
--------------------
E. Philip Hanlon
as Attorney-in-Fact
Dated: March 29, 1996
Page 39 of 46
<PAGE>
Waverly, Inc.
1995 Annual Form 10-K
Exhibit Index
-------------
(3) Articles of Incorporation and By-Laws
A. Articles of Restatement, (incorporated by reference to
Exhibit 3A filed with 1989 Annual Report of Form 10-K)
B. Amended By-Laws of the Registrant dated March 30, 1989.
(incorporated by reference to Exhibit 3B filed with the 1993
Annual Report on Form 10-K)
(9) Voting Trust Agreements
A. Agreement between Michael Urban and members of the Passano
Family Voting Trust. (incorporated by reference to Exhibit 9A,
filed with the 1992 Annual Report on Form 10-K) and Amendment
No. 1. (incorporated by reference to Exhibit 9A, filed with the
1993 Annual Report on Form 10-K)
B. Agreement between various members of the Spahr family and
members of the Passano Family Voting Trust. (incorporated by
reference to Exhibit 9B, filed with the 1992 Annual Report on
Form 10-K)
(10) Material Contracts
A. (Incorporated by reference to Exhibits 13-A to 13-F,
inclusive, of Exhibits to Registration Statement, Form S-1, No.
2-43388, filed April 11, 1972 and Exhibit 20 to Annual report
Form 10-K filed for the year ended December 31, 1980) .
* B. Agreement with David J. Callard dated December 18,
1995, is filed herewith as Exhibit 10B.
* C. Executive employment agreement between Michael
Urban and Urban & Schwarzenberg GmbH dated April 20, 1990
(incorporated by reference to Exhibit 10C filed with the 1990
Annual Report on Form 10-K) .
* D. Agreement between John F. Spahr, Jr. and Waverly,
Inc. dated March 18, 1994, (incorporated by reference to
Exhibit 10D filed with the 1993 Annual Report on Form 10-K) .
E. Note purchase agreement dated as of March 28, 1991
between Waverly, Inc. and The Prudential Insurance Company of
America (incorporated by reference to Exhibit 10E filed with the
1990 Annual Report on Form 10-K) .
F. Director Stock Plan adopted April 27, 1992 (incorporated
by reference to Exhibit 10F filed with the 1992 Annual Report on
Form 10-K) .
* G. Asset purchase agreement between Cadmus
Communication Corp. and Waverly, Inc., (incorporated by
reference to Exhibit 10G filed with the 1993 Annual Report on
Form 10-K) .
Page 40 of 46
<PAGE>
H. Office space property lease between Waverly, Inc. and
the Maryland Stadium Authority dated September 30, 1994
(incorporated by reference to Exhibit 10H filed with the 1994
Annual Report on Form 10-K).
I. 1995 Employee Stock Option Plan adopted April 24, 1995
(incorporated by reference to Exhibit A filed with the 1995
Proxy Statement).
(11) Computation of Earnings Per Share, filed herewith.
(21) Subsidiaries of the Registrant, filed herewith.
(23) Consent of Independent Accountants.
A. Coopers & Lybrand L.L.P.
B. Price Waterhouse LLP
(24) Power of Attorney - Incorporated by reference herein for
all Directors whose Powers of Attorney were filed with the
Commission on Forms 8-K on July 23, 1992, except for the Power
of Attorney for Ackneil M. Muldrow II whose Power of Attorney
was filed with the Commission on August 24, 1992, and Michael M.
E. Johns whose Power of Attorney was filed with the 1993 Annual
Report on Form 10-K, Richard C. Riggs, Jr., whose Power of
Attorney was filed with the 1994 Annual Report on Form 10-K and
Joseph M. Palazzolo whose Power of Attorney is filed herewith.
(27) Financial Data Schedule, filed herewith.
* Management contract or compensatory arrangement
required to be filed as an exhibit to this form.
Page 41 of 46
<PAGE>
Waverly, Inc.
1995 Annual Form 10-K
Exhibit 10(B)
Agreement Between Waverly, Inc. and David J. Callard
----------------------------------------------------
Waverly, Inc. ("Waverly") and David J. Callard (DJC") have
discussed ways in which DJC will assist Waverly in 1996. Such
assistance shall include working with senior management in the
following areas: monthly review of 1996 results and plans as
well as longer range strategic plan for 1996-1998; merger,
acquisition, joint venture, financing, recapitalization and
investment opportunities involving Waverly ("Waverly acquisition
and development opportunities" or "Waverly A&D"); and active
involvement in oversight of the Waverly business through
continued service as Chairman of the Executive Committee.
Waverly and DJC wish to continue the retainer relationship which
has been renewed annually since 1990.
Waverly shall retain DJC as a financial and business advisor at
an annual compensation rate of $90,000 through March 31, 1996
and at an annual compensation rate of $50,000 thereafter;
retainer payment shall be made quarterly in advance. Waverly
and DJC will review quarterly the amount of time spent by DJC on
Waverly projects and mutually agree whether adjustment of the
retainer amount is appropriate for that quarter. Waverly shall
reimburse all reasonable expenses incurred by DJC in carrying
out his duties under the retainer agreement.
Waverly shall, also, pay DJC for assistance with specific
Waverly A&D projects. Such additional payments (contingent or
otherwise) will be determined by mutual at the outset of each
project and shall reflect the complexity and size of each
project and DJC's role.
Waverly shall have the right to determine whether it wants DJC
to have an active role in any Waverly A&D project. DJC and
Waverly wish to ensure that Waverly does not become obligated to
pay double fees in any A&D transaction. The parties shall
designate Waverly A&D projects in which DJC shall participate by
memorandum agreement which shall, also, describe such additional
compensation arrangements as are mutually acceptable.
The retainer arrangement set forth herein shall have a term of
one year from January 1, 1996. Should DJC's future employment
result in his not being available to carry out his duties
hereunder, either party may terminate the retainer arrangement
with retainer compensation prorated to date of termination and
with additional compensation paid where DJC has substantially
completed work on a Waverly A&D opportunity which is closed
subsequent to termination.
This amended agreement represents the renewal provided for in
the November 1990 agreement with certain modifications which are
acceptable to both parties.
/s/ David J. Callard
- --------------------
David J. Callard
Dated: December 18, 1995
/s/ William M. Passano, Jr.
- ---------------------------
William M. Passano Jr.
Dated: December 19, 1995
Page 42 of 46
Waverly, Inc.
1995 Annual Form 10-K
Exhibit 11
Computation of Earnings Per Share
---------------------------------
(in thousands of dollars -
except per share amounts)
Twelve Months Ended
December 31,
1995 1994
------------------------
Net Earnings: $5,305 $4,660
Primary earnings $5,305 $4,660
Fully diluted earnings $5,305 $4,660
Weighted average shares outstanding 4,422 4,360
Dilutive common stock equivalents for
primary earnings per share 200 0
------------------------
Weighted average shares and common
equivalent shares outstanding for
primary earnings per share 4,622 4,360
Additional equivalent shares
assuming full dilution 57 0
-----------------------
Weighted average shares and common
equivalent shares for fully
diluted earnings per share 4,679 4,360
----------------------
Earnings per share
Primary $1.15 $1.07
Fully diluted (1) $1.13 $1.07
(1) Not presented on the Consolidated Statements of Income
because fully diluted a differential less than 3% of
primary earnings per share.
Page 43 of 46
Waverly, Inc.
1995 Annual Form 10-K
Exhibit 21
Subsidiaries of the Company
---------------------------
Williams & Wilkins Sales, Inc.
351 West Camden Street
Baltimore, Maryland 21201 A Maryland Corporation
Waverly Sales, Inc.
351 West Camden Street A United States
Baltimore, Maryland 21201 Virgin Island Corporation
Waverly Europe Ltd.
Broadway House
2-6 Fulham Broadway
London SW6 1 AA England A United Kingdom Corporation
Urban & Schwarzenberg GmbH
Landwehrstrabe 61
D-8000 Munich A German Corporation
Oscar Rothacker Verlagsbuchhandlung, GmbH
Landwehrstrasse 38
Munich A German Corporation
Urban & Schwarzenberg Verlag fur Medizin,
GmbH
Landwehrstrabe 61
D-8000 Munich A German Corporation
Urban & Schwarzenberg Ges.m.b.H.
Frankgasse 4,
Vienna, Austria An Austrian Corporation
Med-Pub, Inc.
900 Market St.
Suite 200
Wilmington, Delaware 19801 A Delaware Corporation
Editions Pradel
4 Passage De La Main D'or
75011 Paris, France A French Corporation
Urban & Partner
Marii Sklodowskiej-Curie Str. 55/61
50-950 Wroclaw, Poland A Polish Corporation
Waverly Info-Med Ltd.
Room 808 Metroplaza Tower 2
223 Hing Fong Road
New Territories, Hong Kong A Hong Kong Corporation
Page 44 of 46
<PAGE>
Exhibit 21 Continued
Waverly Info-Med Ltd.
5/12 Wireless Road
Opp. Hilton Hotel
Bangkok, 10330, Thailand A Thailand Corporation
Waverly, Inc.
1995 Annual Form 10-K
Exhibit 23(A)
Consent of Independent Accountants
----------------------------------
We consent to the incorporation by reference in the
registration statements of Waverly, Inc. and subsidiaries on
Form S-8 (No. 33-41925 and No. 33-61705) of our reports dated
February 1, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Waverly, Inc. and
subsidiaries as of December 31, 1995 and for the year then
ended, which reports are included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Baltimore,Maryland
March 27, 1996
Waverly, Inc.
1995 Annual Form 10-K
Exhibit 23(B)
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-61705 and No.
33-41925) of Waverly, Inc. of our report dated February 22,
1995, related to our audits of the consolidated financial
statements and financial statement schedule of Waverly, Inc. and
subsidiaries as of December 31, 1994 and for each of the two
years in the period then ended, included in this Form 10-K for
the year ended December 31, 1995.
PRICE WATERHOUSE LLP
Baltimore, Maryland
March 27, 1996
Page 45 of 46
Waverly, Inc.
1995 Annual Form 10-K
Exhibit 25
Power of Attorney for Joseph M. Palazzolo
-----------------------------------------
Know all men by these presents, that the undersigned director or
officer of Waverly, Inc., a Maryland Corporation (the
"Corporation"), hereby constitutes and appoints Arthur E. Newman
and E. Philip Hanlon, or either of them acting singly, the true
and lawful agents and attorneys-in-fact of the undersigned with
full power and authority in said agents and attorneys-in-fact or
either of them, to sign for the undersigned and in his name as a
director or officer of the Corporation any Registration
Statement of the Corporation on Form S-8 or amendment thereto to
be filed under the Securities Act of 1933, as amended, with the
Securities and Exchange Commission, Washington, D.C. (the
"Commission"), any Form 10-K or amendment thereto to be filed
with the Commission under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and any form required to be
filed under Section 16(a) of the Exchange Act or amendment
thereto, hereby ratifying and confirming all acts taken by such
agents and attorneys-in-fact, or any one or more of them as
herein authorized. This Power of Attorney shall remain
effective for so long as the undersigned is a director or
officer of the Corporation or such earlier time as the
undersigned files a statement with the Commission revoking this
Power of Attorney.
/s/ Joseph M. Palazzolo
- ----------------------------
Joseph M. Palazzolo
Dated: December 15, 1995
Page 46 of 46
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