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, 1997, Commission File No. 0-6311
WAVERLY, INC.
Incorporated in the State of Maryland
I. R. S. Employer Identification No. 52-0523730
351 West Camden Street, Baltimore, Maryland 21201
Telephone Number: (410) 528-4000
Indicate by check mark whether the Registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
As of March 31, 1997, there were 8,928,722 shares of the
Registrant's Common Stock outstanding.
<PAGE>
Page No. 2
Waverly, Inc.
PART I. Financial Information
Item 1. Financial Statements
Index: Page No.
------ --------
Unaudited Condensed Consolidated Statements of Income 3
Unaudited Condensed Consolidated Balance Sheets 4
Unaudited Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Report of Independent Accountants 9
Managements Discussion and Analysis of Financial
Condition and Results of Operations:
Results of Operations 10
Liquidity and Capital Resources 12
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit 11 - Computation of Earnings Per Share 15
Exhibit 15 - Letter re: unaudited interim financial
information 16
Exhibit 27 - Financial Data Schedule 17
<PAGE>
Page No. 3
Waverly, Inc.
<TABLE>
Condensed Consolidated Statements of Income (Unaudited)
(in thousands of dollars - except per share amounts)
<CAPTION>
---------------------------------------------------------------------------------
Three Months Ended March 31, 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues $39,213 100.0% $37,917 100.0%
Costs and expenses
Cost of sales 24,335 62.1 23,486 61.9
Selling and distribution 9,595 24.5 9,482 25.0
General and administrative 2,942 7.5 3,137 8.3
Depreciation and amortization 1,652 4.2 1,353 3.6
---------------------------------------------------------------------------------
Total operating expenses 38,524 98.2 37,458 98.8
Income from operations 689 1.8 459 1.2
Other income (expense)
Other income 136 0.3 100 0.3
Interest expense (151) (0.4) (214) (0.6)
---------------------------------------------------------------------------------
Total other income (expense) (15) 0.0 (114) (0.3)
Income from operations before
taxes and earnings of affiliated entities 674 1.7 345 0.9
Income tax expense (284) (0.7) (266) (0.7)
Equity in the earnings of affiliated entities 294 0.7 460 1.2
---------------------------------------------------------------------------------
Net Income $684 1.7 $539 1.4
=================================================================================
Earnings per common share and common
share equivalent:
Net Income $0.07 $0.06
=================================================================================
Cash dividends declared per share $0.065 $0.060
=================================================================================
Average number of common and common
equivalent shares outstanding 9,352,743 9,343,830
=================================================================================
<FN>
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,
1997 1996 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $1,759 $5,327 $2,594
Accounts receivable, less allowance for doubtful
accounts ($1,488, $1,493 and $866 respectively) 37,099 40,385 35,660
Inventories 28,257 30,910 31,189
Prepaid expenses 4,576 1,172 4,320
Current deferred income taxes 3,299 3,263 3,042
--------------------------------------------------------------------------------------------
Total current assets 74,990 81,057 76,805
Net property and equipment 7,514 7,840 8,948
Other noncurrent assets 42,024 40,996 41,188
--------------------------------------------------------------------------------------------
Total assets $124,528 $129,893 $126,941
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit borrowings $1,665 $1,366 $2,779
Current portion of long-term debt 2,400 2,400 3,754
Accounts payable 13,034 15,232 14,212
Accrued expenses 3,425 5,299 3,905
Royalties payable 3,878 10,541 3,518
Unearned subscription revenues 25,869 17,791 23,356
Income taxes payable 1,270 1,361 3,175
Current deferred income taxes 242 354 1,142
--------------------------------------------------------------------------------------------
Total current liabilities 51,783 54,344 55,841
Long term debt 1,269 2,595 2,478
Unfunded pension obligation 3,159 3,369 3,401
Postretirement benefit obligation 11,767 11,719 11,770
Deferred income taxes 2,774 2,942 2,759
Other liabilities 579 920 834
--------------------------------------------------------------------------------------------
Total liabilities 71,331 75,889 77,083
--------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock-500,000 shares authorized;
none issued
Common stock-$2 par value; 12,000,000 shares
authorized, 8,928,722, 8,923,120 and 8,888,088
shares issued and outstanding, respectively 17,857 17,846 17,776
Additional paid-in capital 12,623 12,574 12,177
Retained earnings 23,166 23,063 18,999
Foreign currency translation adjustment (449) 521 906
--------------------------------------------------------------------------------------------
Total shareholders' equity 53,197 54,004 49,858
--------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $124,528 $129,893 $126,941
============================================================================================
<FN>
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, 1997 1996
-------------------------------------------------------------------------
<C> <S> <S>
Cash flows from operating activities
Net income $684 $539
Adjustments to reconcile net income to
net cash used in operating activities
Postretirement benefit obligation expense 86 162
Equity in the earnings of affiliated entities (294) (460)
Depreciation and amortization 1,652 1,353
Deferred income taxes (335) (127)
Net periodic pension expense(credit) 117 78
Other 30 34
Change in assets and liabilities adjusting
for the effect of acquisitions
Accounts receivable 3,250 5,086
Inventories 2,278 220
Prepaid expenses (3,139) (3,267)
Accounts payable (1,973) (2,751)
Accrued expenses (2,142) (2,769)
Income taxes payable (24) 66
Royalties payable (6,534) (5,973)
Unearned subscription revenues 8,080 5,163
Other long-term liabilities (389) (218)
-------------------------------------------------------------------------
Net cash provided by (used in) operations 1,347 (2,864)
-------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (659) (438)
Capitalized electronic product development costs (448) (520)
Acquisition of publishing properties (2,373) -
-------------------------------------------------------------------------
Net cash flows used in investing activities (3,480) (958)
-------------------------------------------------------------------------
Cash flows from financing activities
Net borrowings under short-term lines of credit 392 3,450
Repayment of long-term debt (1,212) (1,238)
Common stock dividends paid (581) (534)
Proceeds from exercise of stock options 59 222
-------------------------------------------------------------------------
Net cash flows provided by (used in) financing
activities (1,342) 1,900
-------------------------------------------------------------------------
Net decrease in cash and cash equivalents (3,475) (1,922)
Effect of exchange rates on cash and cash
equivalents (93) (64)
Cash and cash equivalents at January 1, 5,327 4,580
-------------------------------------------------------------------------
Cash and cash equivalents at March 31, $1,759 $2,594
=========================================================================
<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, 1997
and March 31, 1996, the condensed consolidated statements of
operations for the three month periods ended March 31, 1997 and
March 31, 1996, and the condensed consolidated statements of cash
flows for the three month periods ended March 31, 1997 and March
31, 1996 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, 1997, 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, 1997, are
not necessarily indicative of the operating results for the full
year.
2. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128
regarding earnings per share which requires the Company to
present basic and diluted earnings per share in our financial
statements. The Company must adopt the requirements of this
standard in its financial statements for the year ended December
31, 1997. Adoption of this standard is not expected to have a
material impact on the Companys financial statements.
3. Reclassifications
Certain amounts in the prior periods consolidated financial
statements have been reclassified to conform to the current
periods presentation.
<PAGE>
Page No. 7
Waverly, Inc.
4. (a) Inventories
Inventories consist of the following:
--------------------------------------------------------------
(unaudited)
March 31, December 31,
(in thousands) 1997 1996
--------------------------------------------------------------
Finished goods $21,814 $24,318
Work-in-process 6,040 6,116
Raw materials 403 476
--------------------------------------------------------------
$28,257 $30,910
==============================================================
4. (b) Property and equipment
-------------------------------------------------------------
(unaudited)
March 31, December 31,
(in thousands) 1997 1996
-------------------------------------------------------------
Land $728 $792
Buildings 2,280 2,393
Office equipment, computers, and
related software 11,601 11,356
-------------------------------------------------------------
Total, at cost 14,609 14,541
Less: accumulated depreciation (7,095) (6,701)
-------------------------------------------------------------
Net property and equipment $7,514 $7,840
=============================================================
<PAGE>
Page No. 8
Waverly, Inc.
4. (c) Other noncurrent assets
---------------------------------------------------------------------
(unaudited)
March 31, December 31,
1997 1996
---------------------------------------------------------------------
Publication agreements $22,772 $21,386
Goodwill 11,494 10,961
Other intangible assets 2,480 2,417
---------------------------------------------------------------------
Subtotal 36,746 34,764
Accumulated amortization (12,008) (10,852)
---------------------------------------------------------------------
24,738 23,912
Prepaid pension 5,807 5,825
Noncurrent deferred income taxes 3,604 3,604
Equity investment in affiliated entities 3,193 3,065
Electronic product development assets
(net of accumulated amortization of
$3,894 and $3,506, respectively) 4,525 4,439
Other 157 151
---------------------------------------------------------------------
Total other noncurrent assets $42,024 $40,996
=====================================================================
<PAGE>
Page No. 9
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, 1997 and 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, 1996, 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 January 31, 1997 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, 1996, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/Coopers & Lybrand L.L.P.
---------------------------
Coopers & Lybrand L.L.P.
Baltimore, Maryland
April 29, 1996
<PAGE>
Page No. 10
Waverly, Inc.
Part I. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three Months Ended March 31, 1997 Compared
With The Three Months Ended March 31, 1996
Net Sales were $39.2 million, an increase of $1.3 million or 3%
over the prior-year period. Book publishing revenues decreased
slightly by 1%, with domestic revenues 11% higher than the prior
year and international revenues 7% lower than the prior year
owing entirely to the impact of lower currency value for the
German deutsche mark. Domestic book publishing revenues improved
from the prior year due to the January 1997 acquisition of U.S.
based English language titles of Igaku-Shoin Medical Publishers,
Ltd. as well as improved growth in backlist sales.
Periodical publishing revenues increased 8% over the prior year.
Advertising-related revenue and subscription revenue account for
the majority of the increase. Professional Learning Systems
Division (PLS) revenues increased 27%. Higher unit sales of the
deMedici product line, a hospital-based interactive training
system, acquired in June, 1995, accounts for the revenue gain
this period.
Cost of Sales was $24.3 million in 1997 compared with $23.5
million in 1996, an increase of 4% . As a percentage of sales,
costs were 62.1% in 1997 and 61.9% in 1996. Book publishing cost
margin was 61.7% this period compared to 62.4% in the prior year.
Lower obsolescence expense and a favorable mix of more profitable
backlist sales in 1997 generated the higher margin. Periodical
publishing cost margin was 66.1% this period compared to 67.2% in
the prior year. Margins improved from added advertising volume
and cost controlling measures implemented in 1996. PLS cost
margin was 38.0% this year compared to 38.3% last year.
Selling and Distribution expenses were $9.6 million in the
current year compared to $9.5 million for the same period last
year, an increase of 1%. As a percentage of sales, expenses were
24.5% this year compared to 25.0% for the same period last year.
In 1996 the Company incurred higher advertising and distribution
expenses for new book products.
General and Administrative expenses were $2.9 million this year
compared to $3.1 million in 1996. As a percentage of sales,
expenses were 7.5% this year compared with 8.3% last year. Lower
employee health care costs in 1997 is the reason for the year to
year change.
<PAGE>
Page No. 11
Waverly, Inc.
Depreciation and Amortization expenses were $1.7 million this
year compared with $1.4 million in the prior-year period.
Amortization of a greater number of electronic product
development assets is the reason for the year-to-year increase.
Other Income (Expense) was $15,000 of expense this year compared
to $114,000 of expense for the same period last year. Interest
expense was $63,000 lower this year due to the cash needed for
borrowing is lower than in 1996.
Income taxes were $284,000 in 1997 or 42% of pretax income
compared with $266,000 or 77% of pretax income in 1996. The
effective tax rate is lower in 1997 due to the shift in the
geographic source of earnings. In 1997 the Company's German
operations accounted for 73% of total pretax earnings compared to
144% in 1996. The effective tax rate is 45% in Germany and 36%
in the U.S.
Equity in Earnings of Affiliated Entities was $294,000 this year
compared with $460,000 in the prior year period. Lower earnings
from the Japanese J.V. due to the lower value of the yen is the
principal reason.
Net Income was $684,000 or $0.07 per share in the current period
compared to $539,000 or $0.06 per share in the prior year period,
an increase of 27%. The increase is in earnings is attributed to
continued strong performance in periodical publishing and
improved operating margins from domestic book publishing aided by
the January 1997 acquisition of titles from Igaku-Shoin Medical
Publishers, Ltd. (our partner in Japan).
<PAGE>
Page No. 12
Waverly, Inc.
Liquidity and Capital Resources
-------------------------------
Total assets were $124.5 million at March 31, 1997 compared to
$129.9 million at December 31, 1996 and $ 126.9 million at March
31, 1996. The decrease in assets from one year ago is principally
the result of the 12% currency gain of the dollar against the
German deutsche mark. Working capital ratio is 1.4 to 1 at March
31, 1997 and March 31, 1996.
At March 31, 1997, the Company carried a net borrowing position
[defined as cash less short term and long term borrowings] of
$3.6 million compared with a net borrowing position of $6.4 million
at March 31, 1996, and $1.0 million at December 31, 1996.
The increase in net borrowing since the start of the year is due
to the normal seasonal use of cash to pay semiannual author and
society royalties and society editorial allowances. In addition,
the Company acquired the U.S. based English language titles of
Igaku-Shoin Medical Publishers, Ltd. for $2.3 million in January
1997.
The Company's long term debt, net of the current portion, is $1.3
million or 2% of shareholders equity at March 31, 1997, compared
with $2.5 million or 5% of shareholders equity at March 31, 1996.
The Company currently pays a dividend of $0.07 per share per
quarter, equal to an annual rate of $0.28 per share.
At March 31, 1997, the Company recorded $6.9 million as a
deferred U.S. based tax asset related 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 1997, 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, 1997, 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. 13
Waverly, Inc.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
No change
Item 2. Changes in Securities
No change
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits required by Item 601
of Regulation S-K are filed herewith:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 15 - Letter from Coopers & Lybrand L.L.P.,
independent accountants, re unaudited
financial information.
(b) The reports on Form 8K for the quarter ended
March 31, 1997:
None
All other items are omitted because they are not applicable or
the answers are none.
<PAGE>
Page No. 14
Waverly, Inc.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, this statement is being signed by a duly authorized officer
of the Registrant and in the capacity as the principal financial
officer.
WAVERLY, INC.
Date: May 1, 1997
/s/E. Philip Hanlon
-------------------
E. Philip Hanlon
Vice President, Finance
<PAGE>
Page No. 15
Waverly, Inc.
EXHIBIT 11
----------
Computation of Earnings Per Share
(in thousands of dollars - except per share amounts)
------------------------------------------------------------------
Three Months Ended March 31, 1997 1996
------------------------------------------------------------------
Net Earnings: $684 $539
Primary earnings $684 $539
-------------------------------------------------------------------
Fully diluted earnings $684 $539
-------------------------------------------------------------------
Weighted average shares outstanding 8,927 8,882
Dilutive common stock equivalents for
primary earnings per share 426 462
-------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding
for primary earnings per share 9,353 9,344
Additional equivalent shares
assuming full dilution - 10
-------------------------------------------------------------------
Weighted average shares and common
equivalent shares for fully
diluted earnings per share 9,353 9,354
-------------------------------------------------------------------
Earnings per share
Primary $0.07 $0.06
===================================================================
Fully diluted (1) $0.07 $0.06
===================================================================
(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. 16
Waverly, Inc.
EXHIBIT 15
----------
April 25, 1997
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 25, 1997 (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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1759
<SECURITIES> 0
<RECEIVABLES> 38587
<ALLOWANCES> (1488)
<INVENTORY> 28257
<CURRENT-ASSETS> 74990
<PP&E> 14609
<DEPRECIATION> (7095)
<TOTAL-ASSETS> 124528
<CURRENT-LIABILITIES> 51783
<BONDS> 0
0
0
<COMMON> 17857
<OTHER-SE> 35340
<TOTAL-LIABILITY-AND-EQUITY> 124528
<SALES> 39213
<TOTAL-REVENUES> 39643
<CGS> 24335
<TOTAL-COSTS> 38524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 968
<INCOME-TAX> 284
<INCOME-CONTINUING> 684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
