SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1996, Commission File No. 0-6311
WAVERLY, INC.
Incorporated in the State of Maryland
I. R. S. Employer Identification No. 52-0523730
351 West Camden Street, Baltimore, Maryland 21201
Telephone Number: (410) 528-4000
Indicate by check mark whether the Registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to filing requirements for the
past 90 days.
YES X NO
As of March 31, 1996, there were 4,444,044 shares of the
Registrant's Common Stock outstanding.
<PAGE>
Page No. 2
Waverly, Inc.
Index
-----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income 3
Unaudited Condensed Consolidated Balance Sheets 4
Unaudited Condensed Consolidated Statements of Cash 5
Flows
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Liquidity and Capital Resources 11
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 15 - Letter re: unaudited interim financial 15
information
Exhibit 27 - Financial Data Schedule 16
<PAGE>
<TABLE>
Page No. 3
Waverly, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands of dollars - except per share amounts)
<CAPTION>
Three Months Ended March 31, 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues $37,859 100.0 % $34,702 100.0 %
Costs and expenses
Cost of sales 23,486 62.0 21,463 61.8
Selling and distribution 9,482 25.0 8,162 23.5
General and administrative 3,239 8.6 3,079 8.9
Depreciation and amortization 1,353 3.6 1,259 3.6
-----------------------------------------------------------------------------
Total operating expenses 37,560 99.2 33,963 97.9
Income from continuing operations 299 0.8 739 2.1
Other income (expense)
Investment income 260 0.7 602 1.7
Interest expense (214) (0.6) (275) (0.8)
-----------------------------------------------------------------------------
Total other income (expense) 46 0.1 327 0.9
Income from continuing operations before
taxes and earnings of affiliated entities 345 0.9 1,066 3.1
Income tax expense (266) (0.7) (505) (1.5)
Equity in the earnings of affiliated entities 460 1.2 401 1.2
-----------------------------------------------------------------------------
Net Income $539 1.4 $962 2.8
=============================================================================
Earnings per common share and common
share equivalent:
Net Income $0.06 (1) $0.11 (1)
=============================================================================
Cash dividends declared per share $0.060 (1) $0.055 (1)
=============================================================================
Average number of common and common
equivalent shares outstanding 9,343,830 (1) 8,798,146 (1)
=============================================================================
<FN>
(1) Restated to reflect two-for-one stock split authorized by
the Board of Directors on April 29, 1996. See Note 3 .
See accompanying notes to the condensed consolidated financial
statements
</TABLE>
<PAGE>
Page No. 4
Waverly, Inc.
<TABLE>
Condensed Consolidated Balance Sheets
(in thousands of dollars except per share amounts)
<CAPTION>
(unaudited) (unaudited)
March 31, December 31, March 31,
1996 1995 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $3,465 $4,580 $3,957
Investment in marketable securities - - 7,950
Accounts receivable, less allowance for doubtful
accounts ($866, $796 and $761 respectively) 32,644 37,730 26,808
Inventories 31,189 31,531 26,033
Prepaid expenses 4,320 1,053 3,504
Current deferred income taxes 3,042 3,042 3,190
----------------------------------------------------------------------------------------------
Total current assets 74,660 77,936 71,442
Net property and equipment 8,948 9,300 7,676
Other noncurrent assets 41,188 40,963 38,465
----------------------------------------------------------------------------------------------
Total assets $124,796 $128,199 $117,583
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit borrowings $3,650 $200 $1,016
Current portion of long-term debt 3,754 3,790 2,400
Accounts payable 14,212 16,092 10,141
Accrued expenses 3,905 6,674 6,451
Royalties payable 3,518 9,491 2,623
Unearned subscription revenues 20,340 15,177 19,057
Income taxes payable 3,175 3,109 3,806
Current deferred income taxes 1,142 1,192 1,066
----------------------------------------------------------------------------------------------
Total current liabilities 53,696 55,725 46,560
----------------------------------------------------------------------------------------------
Long term debt 2,478 3,680 6,327
Unfunded pension obligation 3,401 3,447 3,462
Postretirement benefit obligation 11,770 11,691 11,517
Deferred income taxes 2,759 2,836 1,594
Other liabilities 834 924 937
----------------------------------------------------------------------------------------------
Total liabilities 74,938 78,303 70,397
----------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock-500,000 shares authorized; none issued
Common stock-$2 par value; 12,000,000 shares
authorized, 8,888,088, 8,865,968 and 8,849,432 shares
issued and outstanding, respectively (1) 17,776 17,732 17,700
Additional paid-in capital 12,177 11,943 11,425
Retained earnings 18,999 19,017 16,285
Foreign currency translation adjustment 906 1,204 1,776
----------------------------------------------------------------------------------------------
Total shareholders' equity 49,858 49,896 47,186
----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $124,796 $128,199 $117,583
==============================================================================================
<FN>
(1) Shares outstanding reflect two-for-one stock split. See Note 3 .
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
Page No. 5
Waverly, Inc.
<TABLE>
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands of dollars)
<CAPTION>
--------------------------------------------------------------------------------------------
For the three months ended March 31, 1996 1995
--------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $539 $962
Adjustments to reconcile net income to
net cash used in operating activities
Postretirement benefit obligation 79 82
Equity in the earnings of affiliated entities (460) (401)
Depreciation and amortization 1,353 1,259
Deferred income taxes (127) 335
Net periodic pension expense(credit) 33 (161)
Other 34 -
Change in assets and liabilities adjusting
for the effect of acquisitions
Accounts receivable 5,086 6,013
Inventories 220 (2,112)
Prepaid expenses (3,267) (2,487)
Accounts payable (1,880) (3,389)
Accrued expenses (2,769) (1,272)
Income taxes payable 66 228
Royalties payable (5,973) (5,327)
Unearned subscription revenues 5,163 1,797
Other long-term liabilities (90) 188
---------------------------------------------------------------------------------------------
Net cash used in operations (1,993) (4,285)
---------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of discontinued operations - 1,000
Purchase of property and equipment (438) (1,097)
Capitalized electronic product development costs (520) (310)
Acquisition of publishing properties - (1,447)
Decrease (increase) in investments in affiliated entities - (520)
Proceeds from sales of marketable securities - 4,000
Purchases of marketable securities - (2,668)
----------------------------------------------------------------------------------------------
Net cash flows used in investing activities (958) (1,042)
----------------------------------------------------------------------------------------------
Cash flows from financing activities
Net borrowings (payments) under short-term lines of credit 3,450 (144)
Repayment of long-term debt (1,238) (1,021)
Common stock dividends paid (534) (487)
Proceeds from exercise of stock options 222 940
-----------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 1,900 (712)
-----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,051) (6,039)
Effect of exchange rates on cash and cash equivalents (64) 394
Cash and cash equivalents at January 1, 4,580 9,602
----------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31, $3,465 $3,957
==============================================================================================
<FN>
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
Page No. 6
Waverly, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(amounts in thousands of dollars except earnings per share)
1. Condensed Consolidated Financial Statements
Waverly and its subsidiaries (the Company) are worldwide
publishers of print and electronic media in the fields of
medicine, allied health, and related disciplines. Products are
distributed worldwide and the Company has operating offices in
the United States and foreign locations.
The condensed consolidated balance sheets as of March 31, 1996,
the condensed consolidated statements of operations for the three
month periods ended March 31, 1996 and March 31, 1995, and the
condensed consolidated statements of cash flows for the three
month periods ended March 31, 1996 and March 31, 1995 have been
prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash
flows at March 31, 1996, and for all periods presented have been
made.
This financial information should be read in conjunction with the
Company's annual report on Form 10-K. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The results of
operations for the three month period ended March 31, 1996, are
not necessarily indicative of the operating results for the full
year.
2. (a) Inventories
Inventories consist of the following:
(unaudited)
March 31, December 31,
(in thousands) 1996 1995
------------------------------------------------------------------
Finished goods $22,823 $23,852
Work-in-process 7,873 7,296
Raw materials 493 383
------------------------------------------------------------------
$31,189 $31,531
==================================================================
<PAGE>
Page No. 7
Waverly, Inc.
2. (b) Property and equipment
(unaudited)
March 31, December 31,
(in thousands) 1996 1995
------------------------------------------------------------------
Land $825 $849
Buildings 2,520 2,549
Office equipment, computers, and
related software 11,658 11,713
------------------------------------------------------------------
Total, at cost 15,003 15,111
Less: accumulated depreciation (6,055) (5,811)
------------------------------------------------------------------
Net property and equipment $8,948 $9,300
==================================================================
2. (c) Other noncurrent assets
(unaudited)
March 31, December 31,
(in thousands of dollars) 1996 1995
-------------------------------------------------------------------
Equity investment in affiliated entities $2,858 $2,438
Goodwill 8,879 9,083
Publication agreements 15,329 15,698
Electronic product development costs 3,342 2,908
Other intangible assets 1,271 1,351
Prepaid pension 5,985 5,967
Noncurrent deferred income taxes 3,371 3,371
Other 153 147
-------------------------------------------------------------------
Total other noncurrent assets $41,188 $40,963
===================================================================
3. Stock Split
On April 29, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% tax-free
stock dividend to be distributed on June 12, 1996, to holders of
record as of May 28, 1996. Shareholders' equity at March 31, 1996,
December 31, 1995 and March 31, 1995, has been adjusted to give
retroactive effect to the stock split by reclassifying from
retained earnings to common stock the par value of the additional
shares arising from the split. In addition, all references in the
financial statements to the per-share amounts in all years, number
of shares at March 31, 1996, and stock option data of the company's
common stock have been restated.
<PAGE>
Page No. 8
Waverly, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Waverly, Inc.
We have reviewed the accompanying condensed consolidated balance
sheet and the related condensed consolidated statements of income
and cash flows of Waverly, Inc. and its subsidiaries as of March
31, 1996, and for the three months then ended. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1995, and the related consolidated statements of income, cash
flows and shareholders' equity for the year then ended (not
presented herein), and in our report dated February 1, 1996 we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1995, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
The condensed consolidated balance sheet and the related
condensed consolidated statements of income and cash flows of
Waverly, Inc. and its subsidiaries as of March 31, 1995, and for
the three months then ended, were reviewed by other accountants
whose report dated May 1, 1995, stated that they did not express
an opinion or any other form of assurance on those statements.
/s/Coopers & Lybrand L.L.P.
---------------------------
Coopers & Lybrand L.L.P.
April 29, 1996
Baltimore, Maryland
<PAGE>
Page No. 9
Waverly, Inc.
Part I. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three Months Ended March 31, 1996
Compared With The Three Months Ended
March 31, 1995
Net Sales were $ 37.9 million , an increase of $ 3.2 million or
9% over the prior-year period. Book publishing revenues increased
5%, with domestic revenues 4% lower than the prior year and
international revenues 11% over the prior year. The introduction
of one of the Company's flagship products, Stedman Medical
Dictionary, 26th Edition, in the prior year period is the principal
reason for the drop in domestic book revenues this year.
Periodical publishing revenues increased 16 % over the prior
year. Advertising-related revenue and special supplements account
for the majority of the increase. Professional Learning Systems
Division (PLS) revenues increased 4%. The acquisition of
de'Medici , a hospital-based interactive training system, in
June, 1995, accounts for the revenue gain this period.
Cost of Sales was $ 23.5 million in 1996 compared with $ 21.5
million in 1995, an increase of 9% . As a percentage of sales,
costs were 62.0% in 1996 and 61.8% in 1995, relatively
unchanged from year to year. Book publishing cost margin was 63.2%
this period compared to 59.1% in the prior year. Several factors
influence the change in the cost margin including higher special
sales this year which carry a lower cost markup, and absence this
year of the impact of the sale of the Stedman Medical Dictionary .
Periodical publishing cost margin was 68.3% this period compared to
72.6% in the prior year. Margins improved from price increases, the
slowdown of industry- wide paper price increases, lower page
usage, and higher proportion of advertising-related revenues. PLS
cost margin was 51.3% this year compared to 42.1% last year.
Current year period charges for editorial and development costs
on future new products are higher this year.
Selling and Distribution expenses were $ 9.5 million in the
current year compared to $ 8.2 million for the same period last
year, an increase of 16%. As a percentage of sales, expenses were
25.0% this year compared to 23.5% for the same period last year.
Start-up expenditures for recent acquisitions and heavier promotion
for the planned larger second quarter new publication releases are
the principal factors.
General and Administrative expenses were $ 3.2 million this year
compared to $ 3.1 million in 1995. As a percentage of sales,
expenses were 8.6% this year compared with 8.9% last year.
<PAGE>
Page No. 10
Waverly, Inc.
Depreciation and Amortization expenses were $ 1.4 million this
year compared with $ 1.3 million in the prior-year period.
Investments in new computer hardware and amortization for new
acquisitions are the reasons for the year-to-year increase.
Other Income( Expense) was $ 46,000 of income this year compared
to $ 327,000 of income for the same period last year. Interest
income was $ 116,000 lower this year due to the use of cash in
1995 for acquisitions. In addition, foreign currency transaction
losses in 1996 were $23,000 compared to $ 185,000 in gains
realized in 1995.
Income taxes were $ 266,000 in 1996 or 77% of pre-tax income
compared with $ 505,000 or 47% of pre-tax income in 1995. The
effective tax rate was higher in 1996 due to the geographic
source of earnings. Larger income was earned this year than last
year in Germany where the effective tax rate is 45% while losses
for the current period occurred in the U.S. operations where the
effective tax rate is 33%.
Equity in Earnings of Affiliated Entities was $ 460,000 this year
compared with $ 401,000 in the prior year period. Earnings from
the Japanese joint venture operations account for the increase in
year to year results.
Net Income was $ 539,000 or $ 0.06 per share in the current
period compared to $ 962,000 or $0.11 per share in the prior year
period, a decrease of 44%. The decrease in earnings is attributed
to several factors including (a) the inclusion last year of the
new edition of the flagship product, Stedman's Medical Dictionary,
(b) higher selling and distribution expenses related to the
integration of de'Medici, a new acquisition and promotion expenses
for forthcoming second quarter publications, (c) the absence of
foreign currency exchange gains in the current year, and
(d) a higher effective tax rate resulting from the change in mix
of domestic and foreign earnings.
<PAGE>
Page No. 11
Waverly, Inc.
Liquidity Capital Resources
---------------------------
Total assets were $124.8 million at March 31, 1996 compared to
$128.2 million at December 31, 1995 and $ 117.6 million at March
31, 1995. The increase in assets from one year ago is a result of
acquisitions completed during the second quarter of 1995 and
additional new product published during the fourth quarter of
1995 leading to higher levels of receivables and inventories.
Working capital ratio is 1.4 to 1 at the end of the current
period compared to 1.5 to 1 at the end of the same period last
year. The decline in the ratio is due to the investments of $5.0
million for acquisitions in Asia, Germany and United States
during the second quarter of 1995.
At March 31, 1996, the Company carried a net borrowing position [
defined as cash less short term and long term borrowings ] of
$6.4 million compared with a net borrowing position of
$5.7 million at March 31, 1995, and $3.1 million at December 31,
1995. The increase in net borrowing since the start of the year
is due primarily to the normal seasonal use of cash to pay
semi-annual author and periodical royalties and periodical
editorial allowances.
The Company's long term debt is $2.5 million or 5% of
shareholders' equity at March 31, 1996, compared with $6.3
million or 13% of shareholders' equity at March 31, 1995. The
Company currently pays a dividend of $0.06 per share per quarter,
or an annual rate of $0.24 per share.
At March 31, 1996, the Company recorded $6.4 million as a
deferred U.S. based tax asset due primarily to postretirement
benefit obligations and future inventory-related deductions. The
Company expects the deferred tax asset to be realized through
future profitable operations, based on the long term earnings
record and therefore has recorded the asset free of any valuation
allowance.
In 1996, the Company expects to fund capital expenditures for
existing operations and payment of dividends from internally
generated cash flows. The seasonal trend in subscription
renewals and domestic book publishing cause certain fluctuations
in the Company's cash position during the year and impact the
use of credit lines. The Company expects to have minimal
line-of-credit borrowings at December 31, 1996, barring a
significant acquisition.
The Company continues to search for investments in publishing
properties and expects to fund such acquisitions through
internally generated cash flow.
<PAGE>
Page No. 12
Waverly, Inc.
Item 1. Legal Proceedings
No change
Item 2. Changes in Securities
No change
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 29, 1996, the Company's Board of Directors
declared a two-for-one stock split of Waverly's
Common Stock, $2.00 par value, (the "Common Stock")
to be effected in the form of a stock dividend. One
share of the Common Stock will be issued
on June 12, 1996, with respect to each share of Common
Stock held by stockholders of record as of the close of
business on May 28, 1996. Immediately following the
stock split, the number of shares of Common
Stock issued and outstanding will double. The Company's
outstanding grants under it's employee stock option
plans and the number of shares available for grant under
the 1995 Employee Stock Option Plan will be adjusted to
give effect to the stock split.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits required by Item 601
of Regulation S-K are filed herewith:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 15 - Letter from Coopers & Lybrand L.L.P.,
independent accountants, re unaudited
financial information.
(b) The reports on Form 8K for the quarter ended
March 31, 1996
None
All other items are omitted because they are not applicable or
the answers are none.
<PAGE>
Page No. 13
Waverly, Inc.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, this statement is being signed by a duly authorized officer
of the Registrant and in the capacity as the principal financial
officer.
WAVERLY, INC.
/s/E. Philip Hanlon
-------------------
E. Philip Hanlon
Vice President, Finance
Dated: May 1, 1996
<PAGE>
Page No. 14
Waverly, Inc.
EXHIBIT 11
----------
Computation of Earnings Per Share
(in thousands of dollars - except per share amounts)
Three Months Ended March 31, 1996 1995
-------------------------------------------------------------------
Net Earnings: $539 $962
Primary earnings $539 $962
-------------------------------------------------------------------
Fully diluted earnings $539 $962
-------------------------------------------------------------------
Weighted average shares outstanding 8,882 8,798
Dilutive common stock equivalents for
primary earnings per share 462 0
-------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding
for primary earnings per share 9,344 8,798
Additional equivalent shares
assuming full dilution 10 -
-------------------------------------------------------------------
Weighted average shares and common
equivalent shares for fully
diluted earnings per share 9,354 8,798
-------------------------------------------------------------------
Earnings per share
Primary $0.06 $0.11
===================================================================
Fully diluted (1) $0.06 $0.11
===================================================================
(1) Not presented on the Consolidated Statements of Income
because fully diluted earnings per share had a differential
less than 3% of primary earnings per share.
Page No. 15
Waverly, Inc.
EXHIBIT 15
----------
April 29, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Waverly, Inc. has incorporated by reference our
report dated April 29, 1996 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Prospectus
constituting part of its Registration Statements on Forms S-8
(File Nos. 33-41925 and 33-61705). We are also aware of our
responsibilities under the Securities Act of 1933.
Very truly yours,
/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3465
<SECURITIES> 0
<RECEIVABLES> 33510
<ALLOWANCES> (866)
<INVENTORY> 31189
<CURRENT-ASSETS> 74660
<PP&E> 15003
<DEPRECIATION> (6055)
<TOTAL-ASSETS> 124796
<CURRENT-LIABILITIES> 53696
<BONDS> 0
0
0
<COMMON> 17776
<OTHER-SE> 32082
<TOTAL-LIABILITY-AND-EQUITY> 124796
<SALES> 37859
<TOTAL-REVENUES> 38579
<CGS> 23486
<TOTAL-COSTS> 37560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> 805
<INCOME-TAX> 266
<INCOME-CONTINUING> 539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 539
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
