UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
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 (Zip Code)
offices)
Registrant's telephone number, 410-528-4000
including area code
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. [ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was $83,077,920, or $22.50 per share
as of February 26, 1997. The number of shares outstanding of
the Registrant's Common Stock was 8,928,722 as of February 26, 1997.
Proxy Statement for the 1997 annual meeting of shareholders of
the Registrant is incorporated by reference in Part III of this
Form 10-K.
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PART I
Item 1. Business
-----------------
General Description
-------------------
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
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, internet marketing,
telemarketing, field sales forces and independent distributors.
Financial disclosure of sales by geographical area for the three
years ending December 31, 1996 appears in Note 14 - Net Sales by
Geographic Areas of the Company's 1996 Annual Report to
Shareholders 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.
________________________________________________________________
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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 healthcare 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. It's 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 1996, Waverly
published 24 such periodicals.
In 1980 the Company published 36 periodicals compared to the
current roster of 72 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, 1996 and 1995 the
Company's paid subscriber base was approximately 381,000 and
385,000 respectively.
Revenues generated from periodical publishing come from three
principal sources. Subscription fees account for approximately
57% of the total. Advertising revenues, principally from
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pharmaceutical and medical equipment manufacturers, contribute
approximately 21% of the total. The remaining 22% is derived
from sales of reprint articles, mail lists, annual bound volumes
and special supplement insert issues from pharmaceutical firms.
The Company publishes two 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 definitive 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 other imprints or brand
names are used for strategic reasons. Other imprints 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 40% of its titles for the
student marketplace while the remaining 60% 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 beyond its initial publication, particularly for
subjects in basic sciences, atlases and reference products. In
1996 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 channels including direct mail,
conventions, internet marketing, telemarketing, field sales and
independent distributors. Approximately 55% of the product line
is sold through retail outlets at college, medical and trade
bookstores as well as institutional libraries. The balance comes
through the direct sales and marketing channels.
The Company promotes and distributes its English language
products to international markets through a separate dedicated
division. The division maintains offices in Baltimore, London,
Buenos Aires, Hong Kong and Bangkok. The Company is a partner
in two distribution companies located in Sydney and Tokyo and
also has distribution agreements with partners in Barcelona and
Paris.
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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.
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 559 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
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and acquire and develop valuable publication properties, (3) to
publish products faster and more cost efficiently, 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.
Employees
As of March 1, 1997, the Company had 592 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. 68 Chairman of the Board since 1988.
Passano, Jr. Chief Executive Officer from 1971
to 1991. Director since 1965.
Employed by the Company since 1955.
E. Magruder 54 Vice Chairman, Secretary since
Passano, Jr. April, 1990. Vice President,
Administration and Corporate
Secretary from 1971 to 1990.
Director since 1972. Employed by
the Company since 1965.
Edward B. Hutton, Jr. 51 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 57 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 48 Executive Vice President since
1990. 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.
Carolyn T. Donohue 59 President, International Division
since 1988. Vice President,
International Marketing from 1981
to 1988. Employed by the Company
since 1957.
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Item 1 continued
Position and Business Experience
Name Age During Past Five Years or More
---- --- ---------------------------------
Frederick Fusting 46 President, Professional Learning
Systems Division since January
1996. Vice President, PLS Division
from 1988 to 1995. Employed by the
Company since 1980.
Richard J. Perry 51 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.
Alma J. Wills 49 President, Periodical Publishing
since 1986. Vice President, Journal
Development from 1984 to 1986.
Employed by the Company since 1976.
Stephan Joss 40 Chief Operating Officer of Urban &
Schwarzenberg since 1997.
Executive Vice President since
1992.
E. Philip Hanlon 48 Chief Financial Officer since 1992.
Vice President, Finance, since
March, 1989. Vice President,
Marketing-Book division from 1987
to 1989. Controller from 1985 to
1987.
Jonas A. Ryckis 33 Treasurer, since February 1997.
Assistant Treasurer from 1995 to
1997. Employed by the Company
since 1989.
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.
As of December 31, 1996, the Company had leases at the following
principal locations:
Square (000's) Expiration
Location Use Feet Annual Cost Dates
-------- --- ---- ----------- -----
Camden Yards South Office space 72,400 $1,046 in 2005
351 W. Camden Street 1996 increasing
Baltimore, Md. 21201 to a maximum of
$1,182 in
2004.
Urban & Schwarzenberg Office space 35,500 628 Various
- Europe Warehouse with
and earliest
Bookstores in 1999
Waverly Europe - Office space 4,000 55 1997
London
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Item 2 continued
Square (000's) Expiration
Location Use Feet Annual Cost Dates
-------- --- ---- ----------- -----
Media, Pennsylvania Office space 7,500 165 1999
Williams & Wilkins Office space 8,600 154 1998
Asia Pacific and
Limited - Hong Kong Warehouse
Williams & Wilkins Office space 2,100 29 1999
Asia Pacific
Limited - Thailand
Item 3. Legal Proceedings.
---------------------------
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 1996.
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 1996.
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, 1997, there were 8,928,722 shares
outstanding (9,731,798 if adjusted for stock options exercisable
within 60 days after the record date). Including stock options
exercisable within 60 days, 3,912,122, or 43.1%, are owned by
members of the Passano family, 802,500 shares, or 9.0%, are owned
by Michael Urban, and 495,000 shares, or 5.5%, 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 414 record
holders of the common stock as of February 26, 1997. 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.
<TABLE>
<CAPTION>
-------------1996------------ ------------1995-------------
Quarter High Low Dividends High Low Dividends
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $ 24.50 $ 20.00 $.060 $ 17.00 $ 13.12 $.055
Second 24.50 19.75 .065 18.50 16.62 .060
Third 26.25 20.00 .065 18.50 17.37 .060
Fourth 29.50 22.75 .065 23.37 18.12 .060
-------------------------------------------------------------------------
Year $ 29.50 $ 19.75 $.255 $ 23.37 $ 13.12 $.235
=========================================================================
8
</TABLE>
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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, 1996 1995 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $170,961 $156,329 $132,064 $121,684 $124,614
Income (loss) from
continuing operations 6,347 5,305 4,888 (2,615) 2,766
Discontinued printing
operations - - (228) (607) 1,999
Effect of changes in
accounting principles - - - - (4,873)
Net income (loss) 6,347 5,305 4,660 (2,008) (108)
Data Per Common Share:
Income (loss) from
continuing operations $ .68 $ .57 $ .56 $ (.30) $ .32
Discontinued printing
operations - - (.03) .07 .23
Effect of changes in
accounting principles - - - - (.57)
Net income (loss) .68 .57 .53 (.23) (.02)
Shareholders' equity 6.05 5.64 5.10 4.65 5.15
(Book Value)
Cash dividends paid .255 .235 .220 .220 .205
Average common shares 8,921 8,844 8,720 8,674 8,656
(thousands)
Balance Sheet Data:
Total assets $131,293 $129,933 $123,003 $116,317 $114,823
Investment in
discontinued
printing operations - - 1,000 2,903 18,460
Working capital 26,713 22,211 25,832 26,495 34,777
Current ratio 1.5 1.4 1.5 1.5 1.8
Long-term debt 2,595 3,680 7,348 8,435 10,892
Shareholders' equity 54,004 49,896 44,444 40,298 44,625
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
1996 COMPARED WITH 1995
_______________________
Company revenues for 1996 totaled $171.0 million, an increase of
$14.6 million, or 9%, compared with 1995. Revenues of the
Company's three major business segments all produced increases
over the prior year. Book Publishing revenues were $105.8 million
in 1996 compared with $98.3 million in 1995, an increase of 8%.
Domestic Book Publishing revenues increased 16% due principally
to an increase in the number of new products published and a
substantial year-to-year increase in industry sales principally
to pharmaceutical companies. International book sales, which
include export sales of English language books and sales of
German language books and account for 53% of total book revenues,
were essentially unchanged from the prior year. Export sales of
English language books increased 13% while sales of German
language books declined 3%. Were it not for lower currency
valuations, sales of German language books would have remained
unchanged from the prior year. Softness in industry sales in
Germany account for the lack of growth in 1996.
Periodical Publishing revenues were $57.8 million in 1996
compared with $52.1 million in 1995, an increase of 11%.
Subscription-based revenues increased 7% due to rate increases.
Advertising-related revenues increased 17% over 1995.
Professional Learning Systems Division (PLS) revenues were $7.3
million in 1996 compared with $6.0 million in 1995, an increase
of 22% over 1995. Gains in revenues came entirely from the full
year inclusion of de'MEDICI systems, a hospital-based interactive
training system purchased by The Company in June 1995.
Cost of sales was $102.0 million in 1996 compared with $94.0
million in 1995, an increase of 9%. As a percentage of sales,
costs were 59.7% in 1996 and 60.1% in 1995. Cost margins for Book
Publishing were 58.7% in 1996 compared with 58.0% in 1995. In
1996, the Company published a large number of comprehensive
reference titles which carry higher initial composition and
printing costs in the first print run. Periodical Publishing cost
margins were 67.2% in 1996 compared with 68.9% in 1995. A healthy
increase in higher margin advertising revenues coupled with
subscription rate increases, which outpaced manufacturing cost
increases, led to the favorable margin improvement in 1996. PLS
cost margin was 33.6% in 1996 compared with 30.2% in 1995.
Selling and distribution expenses were $40.5 million in 1996 and
$37.1 million in 1995, an increase of 9%. As a percentage of
sales, expenses were 23.7% in 1996 and 23.8% in 1995. Expenses as
a percentage of sales were unchanged in the Book Publishing
group, while in the Periodical Publishing group expenses
decreased as a percent of sales due to an increased revenue base.
PLS experienced an increase as a percentage of sales due to the
national rollout of de'MEDICI systems.
General and administrative expenses were $12.9 million in 1996
and $11.9 million in 1995, an increase of 8%. As a percentage of
sales, expenses were 7.5% in 1996 and 7.6% in 1995. Although
pension expense increased $0.9 million from year-to-year, lower
costs in other areas coupled with an expanded revenue base
resulted in comparable cost ratio for both years.
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Other income was $0.2 million in 1996 and $0.8 million in 1995.
Interest earned on invested cash was down from the prior year due
to use of cash in the second half of 1995 for acquisitions.
Foreign currency transaction gains realized in 1995 in the amount
of $0.2 million also attributed to the year-to-year decrease.
Interest expense was $1.1 million 1996 and $1.2 million in 1995.
Equity in earnings of affiliated entities was $906,000 in 1996
compared with $316,000 in 1995. Improved results from all foreign
affiliated entities and the recognition of deferred tax benefits
associated with Quality Medical Publishing were the reasons for the
year-to-year increase.
Income taxes were $3.2 million in 1996 and $2.6 million in 1995.
The effective tax rate was 36.8% in 1995 and 33.9% in 1994.
Income from continuing operations was $6.3 million, or $.68 per
share, in 1996 compared with $5.3 million, or $.57 per share, in
1995, an increase of 19%. The year-to-year increase in earnings
from ongoing operations is a result of the substantial gain in
profits realized by Periodical Publishing, while Book Publishing
and PLS declined from the prior year.
1995 COMPARED WITH 1994
_______________________
Company revenues for 1995 totaled $156.3 million, an increase of
$24.3 million, or 18%, compared with 1994. The Company's three
major business segments all produced increases over the prior
year. Book Publishing revenues were $98.3 million in 1995
compared with $78.7 million in 1994, an increase of 25%. 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 $94.0 million in 1995 compared with $82.4
million in 1994, an increase of 14%. As a percentage of sales,
costs were 60.1% in 1995 and 62.4% in 1994. Cost margins for Book
Publishing were 58.0% 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 68.8.% 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 30.2% in 1995 compared
with 34.9% in 1994.
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Selling and distribution expenses were $37.1 million in 1995 and
$29.8 million in 1994, an increase of 25%. As a percentage of
sales, expenses were 23.8% 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 $11.9 million in both
1995 and 1994. As a percentage of sales, expenses were 7.6% in
1995 and 9.0% 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.
Other income was $0.8 million in 1995 and $0.9 million in 1994.
Interest earned on invested cash was down from the prior year due
to use of cash for acquisitions. 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 $0.57 per
share, in 1995 compared with $4.9 million, or $0.56 per share, in
1994. Excluding the effect of Urban & Vogel, discussed
previously, earnings in 1994 were $0.31 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 $0.03 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 $0.57 per share, in 1995 compared
with $4.7 million, or $0.53 per share, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operations was $9.2 million in 1996 compared
with $0.9 million in 1995 and $7.6 million in 1994. The
substantially greater increase in 1996 compared with 1995 was due
to higher operating income in 1996, the absence in 1996 of a
buildup of inventory and receivables as experienced in 1995, and
higher collections in 1996 for subscription renewals. Cash
generated by the Company in 1996 was used to pay dividends of
$2.3 million, purchase property and equipment of $1.6 million,
reduce long-term debt by $2.5 million, and invest $2.4
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million in electronic software development.
The Company maintains bank lines of $39.6 million worldwide.
There were short-term borrowings of $1.4 million at year end,
leaving a borrowing capacity of $38.2 million at December 31,
1996. The Company expects the bank lines to be sufficient to
finance operating activities in 1997 with a minimal short-term
borrowing balance at December 31, 1997. In addition, the Company
will retire $2.4 million of its long-term debt during 1997. The
Company guarantees a credit line in the amount of $512,000 for its
subsidiary, Williams & Wilkins Asia Pacific Ltd., as well as
various lines of credit, not to exceed $400,000 for the 50%-owned
affiliate, Mosby-Williams & Wilkins Pty., Ltd.
At December 31, 1996, the Company has recorded U.S.-based
deferred tax assets amounting to $6.9 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 1997 the Company expects to invest $2.0 million to purchase
certain assets of Igaku-Shoin Medical Publishers, Inc. (see Note
16). In addition, the Company expects to invest $1.0 million for
capital expenditures, principally computer equipment and related
software, and $2.0 million for electronic product development. In
1997 the Company expects cash flow from operations to be adequate
to fund capital investments, dividend payments, and scheduled
long-term debt retirements.
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 sheets of
Waverly, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations,
shareholders equity and cash flows for the years 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 statements of operations, shareholders' equity and
cash flows 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 audits 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
audits provide 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, 1996 and 1995, and the consolidated results of their
operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Baltimore, Maryland Coopers & Lybrand L.L.P.
January 31, 1997
13
<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 on 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
14
<PAGE>
Consolidated Balance Sheets
(in thousands of dollars except per share amounts)
--------------------------------------------------------------------
At December 31, 1996 1995
--------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 6,727 $ 4,580
Accounts receivable, less allowance for
doubtful accounts
($1,493 and $796, respectively) 40,385 39,464
Inventories 30,910 31,531
Current deferred taxes 3,263 3,042
Prepaid expenses 1,172 1,053
--------------------------------------------------------------------
Total current assets 82,457 79,670
--------------------------------------------------------------------
Property and equipment
Land 792 849
Buildings and improvements 2,393 2,549
Office and computer equipment 11,356 11,713
--------------------------------------------------------------------
14,541 15,111
Less: accumulated depreciation (6,701) (5,811)
--------------------------------------------------------------------
Net property and equipment 7,840 9,300
Intangible assets 23,912 26,132
Electronic product development assets 4,439 2,908
Investments in affiliated entities 3,065 2,438
Prepaid pension 5,825 5,967
Deferred taxes 3,604 3,371
Other assets 151 147
--------------------------------------------------------------------
Total assets $131,293 $129,933
====================================================================
15
<PAGE>
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Line of credit borrowings $ 1,366 $ 200
Current portion of long-term debt 2,400 3,790
Accounts payable 16,632 16,092
Accrued expenses 5,299 6,674
Royalties payable 10,541 9,491
Unearned subscription revenues 17,791 16,911
Income taxes payable 1,361 3,109
Current deferred taxes 354 1,192
--------------------------------------------------------------------
Total current liabilities 55,744 57,459
--------------------------------------------------------------------
Long-term debt 2,595 3,680
Unfunded pension obligation 3,369 3,447
Postretirement benefit obligation 11,719 11,691
Deferred taxes 2,942 2,836
Other liabilities 920 924
--------------------------------------------------------------------
Total liabilities 77,289 80,037
--------------------------------------------------------------------
Commitments and contingencies (Note 13)
Shareholders equity
Preferred stock 500,000 shares
authorized; none issued
Common stock $2 par value; 12,000,000
shares authorized, 8,923,138 and
4,432,984 shares issued and outstanding,
respectively 17,846 8,866
Additional paid-in capital 12,574 11,943
Retained earnings 23,063 27,883
Foreign currency translation adjustment 521 1,204
--------------------------------------------------------------------
Total shareholders equity 54,004 49,896
--------------------------------------------------------------------
Total liabilities and shareholders equity $131,293 $129,933
====================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE>
Consolidated Statements of Operations
(in thousands of dollars except per share amounts)
--------------------------------------------------------------------
For the year ended December 31, 1996 1995 1994
--------------------------------------------------------------------
Revenues $170,961 $156,329 $132,064
Costs and expenses
Cost of sales 102,027 94,015 82,399
Selling and distribution 40,540 37,133 29,761
General and administrative 12,899 11,946 11,888
Depreciation and amortization 6,053 5,292 4,479
-------------------------------
Total operating expenses 161,519 148,386 128,527
--------------------------------------------------------------------
Operating income 9,442 7,943 3,537
--------------------------------------------------------------------
Other income (expense)
Investment income 234 808 942
Interest expense (1,065) (1,201) (1,197)
------------------------------
Total other expense (831) (393) (255)
--------------------------------------------------------------------
Income from continuing operations
before income taxes and earnings
of affiliated entities 8,611 7,550 3,282
--------------------------------------------------------------------
Income Tax Expense (3,170) (2,561) (1,150)
Equity in the earnings of affiliated
entities, including net gain on
sale of Urban & Vogel of $2,485 in
1994 906 316 2,756
-----------------------------
Income from continuing operations 6,347 5,305 4,888
Discontinued printing operations:
Loss on sale of printing
operations, net of income tax
benefit of $139 - - (228)
--------------------------------------------------------------------
Net income $ 6,347 $ 5,305 $ 4,660
====================================================================
Earnings (loss) per common share:
Income from continuing operations $ .68 $ .57 $ .56
Discontinued printing operations:
Loss on sale of printing
operations, net of income
tax benefit - - (.03)
-------------------------------
Net income $ .68 $ .57 $ .53
====================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE>
<TABLE>
Consolidated Statements of Shareholders Equity
(in thousands of dollars except per share amounts)
-----------------------------------------------------------------------------------------------
<CAPTION>
For the three years ended December 31, 1996
-----------------------------------------------------------------------------------------------
Additonal Currency
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 8,703 $10,284 $21,917 $ (606) $40,298
Net loss 4,660 4,660
Cash dividends - $.220 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
adjustments 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 - $.235 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
adjustments 755 755
-----------------------------------------------------------------------------------------------
Balance, December 31, 1995 8,866 11,943 27,883 1,204 49,896
Net income 6,347 6,347
Cash dividends $.255 per share (2,272) (2,272)
Exercise of stock options 81 427 508
Common stock issued
for director fees 4 60 64
Two-for-one common stock split
(Note 2) 8,895 (8,895) -
Tax benefits related to exercise
of stock options 144 144
Foreign currency translation
adjustments (683) (683)
-----------------------------------------------------------------------------------------------
Balance, December 31, 1996 $17,846 $12,574 $23,063 $ 521 $54,004
===============================================================================================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
18
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(in thousands of dollars)
-------------------------------------------------------------------------------
<CAPTION>
For the year ended December 31, 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $6,347 $5,305 $4,660
Adjustments to reconcile net income
to net cash from operating activities
Discontinued printing operations - - 228
Postretirement benefit obligation 574 665 818
Equity in the (earnings) losses of
affiliated entities,including net gain
on sale of Urban & Vogel of $2,485 in 1994 (906) (316) (2,756)
Depreciation and amortization 6,053 5,292 4,479
Deferred income taxes (984) 2,229 (979)
Net periodic pension expense (credit) 521 (395) (417)
Other 180 71 -
Change in assets and liabilities, adjusted for
the effect of acquisitions and divestitures
Accounts receivable (1,241) (3,098) 266
Inventories (324) (7,173) (1,786)
Prepaid expenses (125) 36 1,134
Accounts payable 782 1,749 (1,850)
Accrued expenses (1,314) (1,522) 391
Income taxes payable (1,608) (193) 3,578
Royalties payable 1,234 1,541 1,218
Unearned subscription revenues 981 (2,618) (725)
Other long-term liabilities (1,007) (627) (674)
-------------------------------------------------------------------------------
Net cash provided by operations 9,163 946 7,585
-------------------------------------------------------------------------------
19
<PAGE>
Cash flows from investing activities
Proceeds from sale of Urban & Vogel - - 4,202
Proceeds from sale of discontinued
operations - 1,000 2,903
Purchase of property and equipment (1,590) (4,862) (3,481)
Proceeds from sale of property and
equipment 11 - -
Acquisition of businesses and
publishing properties (211) (6,269) (4,751)
Additions to electronic product
development assets (2,364) (1,396) (1,411)
Decrease in investments in
in affiliated entities 180 310 431
Proceeds from sale of marketable
securities - 10,312 16,900
Purchases of marketable securities - (1,000) (15,032)
-------------------------------------------------------------------------------
Net cash flows used in investing activities (3,974) (1,905) (239)
-------------------------------------------------------------------------------
Cash flows from financing activities
Net borrowings (payments) under
short-term lines of credit 1,166 (960) (386)
Proceeds from issuances of long-term debt - - 1,300
Repayment of long-term debt (2,475) (2,278) (2,446)
Common stock dividends paid (2,272) (2,081) (1,918)
Proceeds from exercise of stock options 508 1,059 306
-------------------------------------------------------------------------------
Net cash flows used in financing activities (3,073) (4,260) (3,144)
-------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,116 (5,219) 4,202
Effect of exchange rates on cash and
cash equivalents 31 197 13
Cash and cash equivalents beginning of year 4,580 9,602 5,387
-------------------------------------------------------------------------------
Cash and cash equivalents end of year $6,727 $4,580 $9,602
===============================================================================
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
20
<PAGE>
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. Overcopies 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.
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.
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.
21
<PAGE>
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 $2,510,000, $2,296,000, and
$2,112,000, for 1996, 1995, and 1994, 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 had no
effect on the Company's financial condition or results of
operations.
Investment in Affiliated Entities
---------------------------------
The Company has noncontrolling equity interests in various
affiliated entities. The equity method of accounting is used for
these investments.
Electronic Product Development Assets
-------------------------------------
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 assets
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 $1,234,000,
$802,000, and $761,000, for 1996, 1995, and 1994, 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 $286,000,
$310,000, and $332,000, for 1996, 1995, and 1994, 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 benefited, ranging from 10
to 40 years. Amortization charged to operations amounted to
$1,546,000, $1,456,000, and $1,114,000, for 1996, 1995, and 1994,
respectively.
22
<PAGE>
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 benefited not exceeding 40
years. Amortization charged to operations amounted to $416,000,
$318,000, and $143,000, for 1996, 1995, and 1994, 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 $11,768,000 and $11,175,000 at
December 31, 1996 and 1995, 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 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 Per Common Share
-------------------------
The computation of earnings 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 per
share was 9,354,981, 9,245,294, and 8,719,306, for 1996, 1995,
and 1994, respectively. Earnings assuming full dilution were not
significantly different from the primary amounts.
Common 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 which was distributed on June 12, 1996, to
shareholders of record as of May 28, 1996. In this report, all
references in the financial statements to the per-share amounts
and stock option data of the Company's common stock have been
restated for all years.
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.
23
<PAGE>
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.
On November 30, 1996, the Company entered into an agreement to
form two separate joint venture arrangements with Groupe Masson,
a unit of CEP Communications, a global communications and
publishing company based in Paris. Both ventures will be equally
owned by Waverly and Groupe Masson. The first venture is named
Masson-Williams France, based in Paris. The Company contributed
the net assets of its wholly owned French subsidiary, Editions
Pradel, to the joint venture and Groupe Masson contributed cash.
The second venture is named Masson-Williams & Wilkins Espana,
based in Barcelona. Both companies contributed cash to form this
joint venture. These ventures will enable the Company's English
language products to be translated and distributed in
French-speaking and Spanish-speaking countries.
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.
24
<PAGE>
Equity in the earnings of affiliated entities consists
of the following:
--------------------------------------------------------------------
(in thousands) 1996 1995 1994
--------------------------------------------------------------------
Equity in earnings (loss)
Verlegerdienst Munchen
(Germany) $ 276 $ 215 $ 309
Mosby-Williams & Wilkins
Pty., Ltd. (Australia) 101 37 54
Igaku-Shoin MYW, Ltd.
(Japan) 200 100 77
Waverly Hispanica S.A.
(Argentina) 127 25 125
Info-Med Ltd. (Hong Kong) - - 15
Quality Medical Publishing
(United States) 202* (61) (11)
------------------------------------------------------------------
Subtotal 906 316 569
Urban & Vogel (Germany)
Operational (losses) - - (298)
Gain on sale - - 2,485
------------------------------------------------------------------
Total equity in earnings $ 906 $ 316 $2,756
------------------------------------------------------------------
*Represents tax benefits previously not recognized.
Note 4 Intangible Assets
-------------------------
Intangible assets consisted of the following at December 31:
-------------------------------------------------
(in thousands) 1996 1995
-------------------------------------------------
Goodwill $10,961 $10,715
Publication agreements 21,386 21,140
Subscription lists and
noncompete agreements 2,417 2,417
Accumulated amortization (10,852) (8,140)
-------------------------------------------------
Total $23,912 $26,132
=================================================
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 $367,000 and
$534,000 at December 31, 1996 and 1995, respectively. The balance
at December 31, 1996 consists of employee separation agreements
to be paid through the year 2000.
25
<PAGE>
Note 6 Inventory
-----------------
Inventories at December 31 consist of the following:
------------------------------------------------
(in thousands) 1996 1995
------------------------------------------------
Finished goods $ 24,318 $ 23,852
Work-in-process 6,116 7,296
Raw materials 476 383
------------------------------------------------
$ 30,910 $ 31,531
================================================
If the FIFO method of inventory had been used by the Company for
domestic inventory, the carrying value would have been $655,000
higher than reported at December 31, 1996 and $49,000 higher than
reported at December 31, 1995.
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 $2,906,000, $2,422,000, and $2,105,000, for 1996, 1995, and
1994, respectively.
Note 7 Debt
------------
The Company maintains uncollateralized lines of credit borrowing
arrangements of $39,600,000 with various banks. In 1996, interest
rates under these agreements ranged from 6.58% to 7.09%. At
December 31, 1996 and 1995, unused bank lines of credit amounted
to approximately $38,200,000 and $38,800,000, 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) 1996 1995
--------------------------------------------------
Term loans $ 4,898 $ 7,366
Related party note 8% 97 104
--------------------------------------------------
4,995 7,470
Less current maturities (2,400) (3,790)
--------------------------------------------------
Long-term debt $ 2,595 $ 3,680
==================================================
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 $1,299,000 with a lending institution at an annual
rate of 5.9%. The loan is collateralized by Company-owned real
26
<PAGE>
estate with a fair market value in excess of the principal. The
loan is due to be paid in one installment on December 31, 1998.
Estimated fair values of debt obligations approximate the
carrying value at December 31, 1996 and 1995, respectively.
The related party note of $97,000 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, 1996, are
$2,400,000 in 1997 and $2,498,000 in 1998.
The Company guarantees a credit line in the amount of $512,000
for its subsidiary, Williams & Wilkins Asia Pacific Ltd., as well
as 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
$1,065,000, $1,201,000, and $1,197,000, for 1996, 1995, and 1994,
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) 1996 1995 1994
-------------------------------------------------------
Domestic $ 6,212 $ 5,223 $ 2,753
Foreign 2,399 2,327 529
-------------------------------------------------------
Total $ 8,611 $ 7,550 $ 3,282
=======================================================
The provision (benefit) for income taxes charged to continuing
operations is presented below:
--------------------------------------------------------
(in thousands) 1996 1995 1994
--------------------------------------------------------
Current provision
U.S. Federal $ 2,124 $ 843 $ 1,299
State 405 161 247
Foreign 1,828 (8) 583
--------------------------------------------------------
Total current $ 4,357 $ 996 $ 2,129
========================================================
Deferred provision
U.S. Federal (185) 326 (981)
State (270) 94 (185)
Foreign (732) 1,145 187
--------------------------------------------------------
Total deferred (1,187) 1,565 (979)
--------------------------------------------------------
Income tax
expense $ 3,170 $ 2,561 $ 1,150
========================================================
27
<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) 1996 1995
-------------------------------------------------
Postretirement obligation $ 4,607 $ 4,443
Inventory related 1,704 1,377
Depreciation 104 187
Printing Division sale 111 369
Asset provisions 863 506
NOL benefits 839 637
Group insurance 163 139
IRS settlements 425 486
Contributions 363 441
Other, net 275 387
-------------------------------------------------
Gross deferred tax assets 9,454 8,972
-------------------------------------------------
Prepaid pension (2,181) (2,175)
Excess of tax over book
amortization (205) (364)
Undistributed profits (112) -
Other, net (89) (20)
-------------------------------------------------
Gross deferred tax
liabilities (2,587) (2,559)
-------------------------------------------------
Net deferred tax asset $ 6,867 $ 6,413
=================================================
Foreign
-------------------------------------------------
(in thousands) 1996 1995
-------------------------------------------------
Undistributed profits $ 141 $ -
Pension liability 147 114
-------------------------------------------------
Gross deferred tax assets 288 114
-------------------------------------------------
Excess of tax over book
amortization (1,710) (1,816)
U&V gain (1,129) (1,135)
Inventory related (631) (741)
Undistributed profits - (328)
Book return provision (114) (122)
-------------------------------------------------
Gross deferred tax
liabilities (3,584) (4,142)
-------------------------------------------------
Net deferred tax liability $(3,296) $(4,028)
=================================================
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.
28
<PAGE>
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:
-------------------------------------------------------
(in thousands) 1996 1995 1994
-------------------------------------------------------
U.S. Federal statutory
tax expense (benefit): $ 2,928 $ 2,567 $ 1,116
Increase (decrease) in tax
rate resulting
from state income taxes,
net of federal tax benefit 79 79 181
Effect of foreign taxes 473 346 345
Foreign sales corporation
tax benefit (320) (287) (268)
Contributions (46) (37) (53)
Other, net 56 (107) (171)
-------------------------------------------------------
Income tax expense $ 3,170 $ 2,561 $ 1,150
=======================================================
Effective tax rate 36.8% 33.9% 35.0%
=======================================================
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 $144,000 for 1996 and
$364,000 in 1995.
Cash outflows from operating activities include income taxes paid
of $4,883,000, $603,000, and $1,434,000, for 1996, 1995, and
1994, 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, 1996, 1995, and 1994 were determined
using assumed weighted average discount rates of 7.7%, 7.0%, and
8.9%, respectively. The assumed long-term rate of compensation
increase is 5.0% for 1996, 5.5% for 1995, and 5.5% for 1994. 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 expense (credit) and the
funded status of the plan for the years ended December 31 is
presented as follows:
29
<PAGE>
---------------------------------------------------------
(in thousands) 1996 1995 1994
---------------------------------------------------------
Service cost benefits
earned for the period $ 430 $ 269 $ 412
Interest cost on projected
benefit obligation 1,824 1,697 1,735
Amortization of loss and
prior service cost (12) (12) 213
Return on plan assets (2,399) (2,062) (2,335)
Amortization of unrecognized
net gain at date of
initial application
of FAS 87 - (680) (684)
Amortization of
unrecognized net loss 300 - -
---------------------------------------------------------
Net periodic pension
expense (credit) $ 143 $ (788) $ (659)
=========================================================
The funded status of the plan at December 31 is presented below:
----------------------------------------------------------------
(in thousands) 1996 1995 1994
----------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $(23,211) $(24,249) $(18,737)
Nonvested benefit
obligation (329) (385) (231)
----------------------------------------------------------------
Accumulated benefit
obligation (23,540) (24,634) (18,968)
Effect of projected
actuarial increases (1,578) (1,821) (1,410)
----------------------------------------------------------------
Actuarial present value of
projected benefit
obligation (25,118) (26,455) (20,378)
Market value of plan assets
at end of period 30,814 27,404 23,689
----------------------------------------------------------------
Excess of plan assets over
liabilities 5,696 949 3,311
Unamortized net gain at date
of initial application of
FAS 87 - - (680)
Unrecognized net loss 129 5,018 2,548
----------------------------------------------------------------
Prepaid pension expense $ 5,825 $ 5,967 $ 5,179
================================================================
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
30
<PAGE>
value of such unfunded pension obligations is computed using an
interest rate of 7% per annum. The charge to income for 1996,
1995, and 1994 was $378,000, $393,000, and $242,000,
respectively.
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 years
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
contributed and incurred expenses of $213,000, $207,000, and
$203,000, in 1996, 1995, and 1994, 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 $475,000, $409,000, and $445,000, in 1996, 1995, and 1994,
respectively.
Summary information on the Company's postretirement benefit plan
at December 31, 1996, and 1995, is presented below:
Accumulated postretirement benefit obligation:
--------------------------------------------------
(in thousands) 1996 1995
--------------------------------------------------
Retirees $ 5,310 $ 6,406
Fully eligible, active plan
participants 6,409 5,285
--------------------------------------------------
Accrued postretirement
benefit obligation $ 11,719 $ 11,691
--------------------------------------------------
31
<PAGE>
Net periodic postretirement benefit cost included the following
components for the years ended December 31:
---------------------------------------------------------
(in thousands) 1996 1995 1994
---------------------------------------------------------
Service cost of benefit
earned $ 44 $ 37 $ 46
Interest cost on accumulated
postretirement benefit
obligation 684 785 766
Plan fees - - 6
Amortization of unrecognized
net actuarial gain (154) (157) -
---------------------------------------------------------
Net periodic postretirement
benefit cost $ 574 $ 665 $ 818
=========================================================
The assumed weighted average discount rate used in determining
the accumulated postretirement benefit obligation (APBO) was
8.0%, 7.6%, and 8.9% in 1996, 1995, and 1994, respectively. The
assumed health care inflation rate used in measuring the APBO was
9% 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, 1996, would be increased by
approximately $488,000. The cost effect of this change on the sum
of the service cost and interest cost components of net periodic
postretirement benefit cost for 1996 would be an increase of
approximately $38,000.
Note 10 Business and Publishing Property Acquisitions
-------------------------------------------------------
1996 Activity
-------------
The Company did not acquire any material business or publishing
property in 1996. In January 1997, the Company did acquire
certain assets of Igaku-Shoin Medical Publishers, Inc. (see Note
16).
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
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.
32
<PAGE>
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.
Note 11 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 $1,025,000, $1,350,000,
and $1,250,000, for 1996, 1995, and 1994, respectively.
The Company has two stock option plans at December 31, 1996: 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, 1996 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 1,500,000 shares of common
stock through January 2005. Options granted vest ratably over
four years. There are 527,694 options available to grant at
December 31, 1996. The options expire on the tenth anniversary of
the grant date. The table below summarizes the transactions.
33
<PAGE>
_______________________________________________________________
Number of Shares
Stock Options 1996 1995 1994
---------------------------------------------------------------
Outstanding at January 1, 917,506 927,402 860,702
Granted 115,900 117,200 122,800
Exercised (54,102) (121,844) (33,800)
Surrendered (6,998) (5,252) (22,300)
---------------------------------------------------------------
Outstanding at December 31, 972,306 917,506 927,402
---------------------------------------------------------------
Exercisable at December 31, 721,113 678,156 661,502
--------------------------------------------------------------
Options price per share
Granted $21.12 $14.25 $9.25
and and
$17.50 $9.75
Exercised/surrendered $6.50 $6.50 $8.50
to to to
$14.25 $19.57 $12.88
Outstanding $6.50 $6.50 $6.50
at December 31, to to to
$21.12 $14.25 $12.00
==============================================================
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 allows
companies to account for stock-based compensation either under
the new provisions of SFAS 123 or under the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees," but requires pro forma disclosure
in the footnotes to the financial statements as if the
measurement provisions of SFAS 123 had been adopted. The Company
has continued to account for its stock-based compensation in
accordance with the provisions of APB 25. If compensation
expense had been recorded based on the fair value at the grant
dates for awards under the Plans consistent with the method
proscribed by SFAS 123, the Company's net income and income per
share would have been adjusted to the pro forma amounts presented
below:
34
<PAGE>
------------------------------------------------------
1996 1995
------------------------------------------------------
Net Income
As reported $ 6,347 $ 5,305
Pro forma $ 5,768 $ 4,868
Income per common share
As reported $ 0.68 $ 0.57
Pro forma $ 0.62 $ 0.53
======================================================
The fair value of each option is estimated on the date of grant
using a type of Black-Scholes option-pricing model with the
following assumptions used for grants issued during the years
ended December 31, 1996 and 1995: dividend yield of 1.2%,
expected volatility of 29%, risk-free interest rate of 5.9% in
1996 and 6.5% in 1995, and expected term of 7 years for both
years. the pro forma net income was recorded net of a deferred
income tax benefit of $355,000 in 1996 and $268,000 in 1995.
A summary of the status of the Company's stock option plans as
required by SFAS 123 is presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------ ------------------
<S> <C> <C> <C> <C>
Options outstanding beginning of period 917,506 $ 10.04 927,402 $ 9.33
Options exercised (54,102) $ 9.39 (121,844) $ 8.69
Options surrendered (6,998) $ 16.90 (5,252) $ 10.58
Options granted 115,900 $ 21.12 117,200 $ 14.25
Options end of period 972,306 $ 11.35 917,506 $ 10.04
Options exercisable at end of period 721,113 $ 10.00 678,156 $ 9.88
Weighted average fair value of options
granted during the period - $ 8.06 - $ 5.99
============================================================================================
</TABLE>
As of December 31, 1996, the weighted average remaining
contractual life of the options that range from $6.50 to $21.12
is 5.1 years.
Note 12 Related Party Transactions
-----------------------------------
The Company made payments of $60,000, $90,000, and $86,000, in
1996, 1995, and 1994, respectively, to a member of the Board of
Directors for financial advisory services related to acquisitions
and development.
35
<PAGE>
Note 13 Commitments and Contingencies
--------------------------------------
The Company leases office facilities and equipment under
noncancelable operating leases. Related rent expense was
$2,260,000, $1,731,000, and $1,164,000, for 1996, 1995, and 1994,
respectively. Future minimum rental lease payments under these
lease agreements aggregate $2,258,000 in 1997, $2,128,000 in
1998, $1,838,000 in 1999, $1,827,000 in 2000, $1,353,000 in 2001,
and $4,339,000 thereafter.
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 1996. Future minimum rental income under this
sublease agreement aggregates $237,000 in 1997, $237,000 in 1998,
$237,000 in 1999, and $39,000 in 2000.
Note 14 Revenues by Geographic Areas
-------------------------------------
Revenues by geographic area for the years ended December 31 are
presented below:
-----------------------------------------------------------
(in thousands) 1996 1995 1994
-----------------------------------------------------------
United States $ 98,282 88,818 76,105
Europe 55,788 54,176 43,484
Asia 9,272 6,695 5,965
North America
(excluding U.S.) 3,988 3,167 3,141
Australia 1,617 1,394 1,380
South America 1,824 1,684 1,485
Africa 190 395 504
-----------------------------------------------------------
Total $170,961 $156,329 $132,064
===========================================================
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 1996, 1995, and 1994 include German-based revenues
of $39,000,000, $40,000,000, and $29,800,000, income from
operations of $2,823,000, $2,626,000, and $762,000, and
identifiable assets of $29,800,000, $32,700,000, and $28,900,000,
respectively.
36
<PAGE>
Note 15 Financial Information by Quarter (Unaudited)
-----------------------------------------------------
-------------------------------------------------------------
(in thousands of dollars except
per share data) 1996 1995
-------------------------------------------------------------
Revenues
First quarter $ 37,917 $ 34,744
Second quarter 43,349 39,247
Third quarter 39,589 33,861
Fourth quarter 50,106 48,477
-------------------------------------------------------------
Full Year $170,961 $156,329
-------------------------------------------------------------
Operating Income (Loss)
First quarter $ 459 $ 917
Second quarter 2,864 3,290
Third quarter 1,415 1,255
Fourth quarter 4,704 2,481
-------------------------------------------------------------
Full Year $ 9,442 $ 7,943
-------------------------------------------------------------
Net Income
First quarter $ 539 $ 962
Second quarter 1,881 2,094
Third quarter 1,155 595
Fourth quarter 2,772 1,654
-------------------------------------------------------------
Full Year $ 6,347 $ 5,305
-------------------------------------------------------------
Primary Earnings Per Common Share
First quarter $ 0.06 $ 0.11
Second quarter 0.20 0.23
Third quarter 0.12 0.05
Fourth quarter 0.30 0.18
-------------------------------------------------------------
Full Year $ 0.68 $ 0.57
=============================================================
Note 16 Subsequent Event
-------------------------
The Company entered into an agreement on January 31, 1997 to
acquire certain assets of Igaku-Shoin Medical Publishers, Inc., a
New York-based subsidiary of Igaku-Shoin Ltd., a leading
publisher of Japanese language medical books and periodicals.
The Company will pay approximately $2.0 million in cash to
acquire inventory, copyrights, and interests in all Igaku-Shoin,
Ltd. English language publications.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial
---------------------------------------------------------
Not applicable.
37
<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 1997 annual meeting of shareholders, copies of which will be
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 1997 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 "Certain Transactions" from the Registrant's definitive
proxy statement for the 1997 annual meeting of shareholders,
copies of which have been be filed with the Securities and
Exchange Commission.
Item 13. Certain Relationships and Related Transactions.
--------------------------------------------------------
Incorporated herein by reference from the Registrant's definitive
proxy statement for the 1997 annual meeting of shareholders,
copies of which have been be filed with the Securities and
Exchange Commission.
38
<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, 16
1996 and 1995
Consolidated Statements of Operations for the 18
three years ended December 31, 1996
Consolidated Statements of Shareholders' 19
Equity for the three years ended December
31, 1996
Consolidated Statements of Cash Flows for the 20
three years ended December 31, 1996
Notes to Consolidated Financial Statements 22
(2)Financial Statement Schedules:
------------------------------
Report of Independent Accountants on Financial 40
Statement Schedule
Schedule II - Valuation and Qualifying 40
Accounts and Reserves
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 42.
(b) Reports on Form 8-K
-------------------
The Registrant was not required to file any report on Form
8-K for the fourth quarter of 1996.
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Waverly, Inc.
Our report on the December 31, 1996 and 1995
consolidated financial statements of Waverly, Inc.
and subsidiaries has been included in this Annual
Report on Form 10-K. In connection with our audits
of such financial statements, we have also audited
the 1996 and 1995 information in the related
financial statement schedule listed in the index
in Item 14 of this Form 10-K.
In our opinion, the 1996 and 1995 information in
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
January 31, 1997
Schedule II
<TABLE>
Valuation and Qualifying Accounts and Reserves
----------------------------------------------
<CAPTION>
Deductions:
Amounts
Balance at Additions: Charged off
Beginning of Charged to Less Balance at
Classification Year Income Recoveries End of Year
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Year ended December 31,
1996, Allowance for
doubtful accounts $ 796 $ 782 $ 85 $1,493
</TABLE>
40
<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 and the following persons have signed
in the capacities indicated.
Waverly, Inc.
By: /s/ Edward B. Hutton, Jr.
-------------------------
Edward B. Hutton, Jr.
President, Chief Executive Officer
Dated: March 31, 1997
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.
-------------------------
Edward B. Hutton, Jr.
Director, President, Chief Executive Officer
(Principal Officer)
Dated: March 31, 1997
By: /s/ E. Philip Hanlon
--------------------
E. Philip Hanlon
Vice President and Chief Financial Officer
Dated: March 31, 1997
Majority of Board of Directors:
Barbara J. Bonnell, David J. Callard, Donald W. Dick, Jr.,
Edward B. Hutton, Jr., Michael 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.,
Michael Urban.
By: /s/ E. Philip Hanlon March 31, 1997
--------------------
E. Philip Hanlon
as Attorney-in-Fact
41
<PAGE>
Waverly, Inc.
1996 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 From 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 30,
1996, 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).
42
<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 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 was filed with the 1995 Annual Report.
(27) Financial Data Schedule, filed herewith.
* Management contract or compensatory arrangement required
to be filed as an exhibit to this form.
43
<PAGE>
Waverly, Inc.
1996 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 1997. Such
assistance shall include working with senior management in the
following areas: monthly review of 1997 results and plans as
well as longer range strategic plan for 1997-1999; 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 $50,000; 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, 1997. 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 30, 1996
/s/ William M. Passano, Jr.
---------------------------
William M. Passano, Jr.
Dated: January 3, 1997
Waverly, Inc.
1996 Annual Form 10-K
Exhibit 11
Computation of Earnings Per Share
(in thousands of dollars - except per share amounts)
---------------------------------------------------------------
Twelve Months Ended December 31, 1996 1995
---------------------------------------------------------------
Net Earnings: $6,347 $5,305
Primary earnings $6,347 $5,305
---------------------------------------------------------------
Fully diluted earnings $6,347 $5,305
---------------------------------------------------------------
Weighted average shares outstanding 8,902 8,844
Dilutive common stock equivalents for
primary earnings per share 453 401
---------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding
for primary earnings per share 9,355 9,245
Additional equivalent shares assuming
full dilution 18 114
---------------------------------------------------------------
Weighted average shares and common
equivalent shares for fully diluted
earnings per share 9,373 9,359
---------------------------------------------------------------
Earnings per share
Primary $0.68 $0.57
===============================================================
Fully diluted (1) $0.68 $0.56
===============================================================
(1) Not presented on the Consolidated Statements of Income
because the fully diluted differential is less than 3% of
primary earnings per share.
Waverly, Inc.
1996 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
Urban & Partner
Marii Sklodowskiej-Curie Str. 55/61
50-950 Wroclaw, Poland A Polish Corporation
Williams & Wilkins Asia-Pacific Ltd.
Room 808 Metroplaza Tower 2
223 Hing Fong Road
New Territories, Hong Kong A Hong Kong Corporation
Williams & Wilkins Asia-Pacific Ltd.
5/12 Wireless Road
Opp. Hilton Hotel
Bangkok, 10330, Thailand A Thailand Corporation
Waverly, Inc.
1996 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 January 31, 1997, on our audits of the
consolidated financial statements and financial statement
schedule of Waverly, Inc. and subsidiaries as of December
31, 1996 and 1995 and for the years then ended, which reports
are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 31, 1997
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
the year then ended, included in this Form 10-K for the year
ended December 31, 1996.
PRICE WATERHOUSE LLP
Linthicum, Maryland
March 31, 1997
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