WAVERLY WAKES UP A once-sleepy publishing company is taking risks - and growing worldwide

Edward B. Hutton Jr. wends his way through a gray maze of office partitions, turns into a hallway and strolls straight into an ambush.

An enthusiastic subordinate blocks his path to breathlessly deliver some news: A business associate of Mr. Hutton's has phoned with a hot idea for a joint publishing venture on aging and Alzheimers.


Welcome to the world of Waverly Inc.

A Baltimore-based, closely held firm that maintains a low local profile, Waverly has a lofty reputation in the field of medical and scientific publishing and printing. For years it was a company that, although profitable, looked and acted like an overgrown mom-and-pop operation. But now, Waverly has begun to branch out in a major way, dramatically shedding its old image in the process.


Under the direction of Chief Executive Officer Mr. Hutton, 45, and Chairman William M. Passano Jr., 62, Waverly recently embarked on a buying spree that snapped up three small, highly regarded medical book publishers within a year. That, along with joint ventures in Australia, Japan, Argentina and Hong Kong, have opened up an international market and have further solidified its ranking as one of the top four U.S. companies in the business.

The publishing and printing firm's aggressive new approach stems in part from an infusion of new blood: Mr. Hutton's ascension to CEO earlier this year marked the first time since 1898 that a member of Mr. Passano's family hasn't been at the company's helm.

Positioning the company for the future has brought some short-term problems, including $17 million in debt, a drop in the company's stock price and additional pressures for staffers grappling with increased responsibilities.

And while Waverly's top two executives predict annual revenues will grow from about $130 million to $500 million in the next 10 years, they're concerned that the company doesn't get a case of corporate indigestion from gobbling up its three competitors.

That goal, coupled with the chore of managing Waverly's international joint ventures, is keeping the executives on their toes -- and piling up frequent flier miles.

"We're on schedule financially and operationally with where we wanted to be -- not to say we haven't had a few bumps along the way -- of course we have," Mr. Hutton said. "But we haven't had any major surprises . . ."

After pursuing only a handful of mergers for the better part of 100 years, Waverly spent $26 million in cash and stock to purchase:

* Lea & Febiger L.P., the nation's oldest publisher. Founded in 1785 and known for its titles in medicine and related sciences, Philadelphia-based Lea & Febiger publishes the well-known U.S. edition of Gray's Anatomy. The acquisition was consummated in January in a cash and stock deal worth about $7.5 million.


* Urban & Schwarzenberg, a publisher of medical, dental and allied health books and journals. The company, founded in Vienna in 1866 and now headquartered in Munich, is regarded as one of the more successful publishing houses of its type in Europe. Waverly bought it in 1990 in a cash and stock deal valued at roughly $10 million.

* Harwal Publishing Co., a company based in Media, Pa., and maker of the National Medical Series of review books for medical students. Waverly paid John Wiley and Sons Inc. $8 million in cash for that purchase, which also occurred last year.

After its flurry of expansion-related activity, Waverly is content to rest for the time being, Mr. Hutton and Mr. Passano say.

"If we could always have our druthers and do things exactly as planned and as desired, we would not do any acquisitions for the next two years," Mr. Hutton said, speaking in a conference room at the company's headquarters at 428 E. Preston St. "But of course we don't control when certain publishing properties might come up for sale that would be ideal fits with our strategic agenda."

"Any acquisition we would make in the future would have to fit a very precise, strategic opportunity for our company," Mr. Passano chimed in. "The German one was a very good niche. It opened up all of Europe -- the Berlin Wall came down right after we bought it. You've got the [European] Common Market that's opening up. It was very strategic."

The purchases have affected Waverly -- which prides itself in paying its bills on time and with cash -- in a number of ways. One example has been the addition of $17 million worth of debt to the company's previously debt-free books. That brought long-term debt as a percentage of equity to about 30 percent.


Although Waverly's revenue exceeded $33 million for the first quarter of 1991, a 31 percent increase over a year earlier, earnings per share were 14 cents, a 48 percent drop. That's due to the fact Waverly is funneling profits toward debt service -- a move that doesn't bode well for stockholders in the short-term.

"Under the current schedule of amortization and depreciation, roughly a third of the acquisition prices for all these acquisitions will be written off in three years," Mr. Hutton said. "That's a pretty aggressive approach . . ."

The results can also be seen in the company's stock price, which has hovered around the $20 mark since 1985 -- with the exception of 1989 when it went up to $32. This year, it's been trading around the $15 level.

The pressures of absorbing three companies and running four international joint ventures have been felt in other ways. "We've put a lot of strains in the organization service-wise, management-wise, and financial-wise," Mr. Passano said.

Lea & Febiger, Harwal and Urban & Schwarzenberg have remained autonomous in terms of editorial production and marketing, Mr. Passano said. But financial management, order processing and customer service duties have been taken over by Waverly.

Those tasks have been added to the work already done to support Waverly's publishing arm, Williams & Wilkins, and its Waverly Press printing operation, which is housed in a four-acre printing plant in Easton, Md. Waverly Inc. now has more than 1,000 employees under its umbrella and was recently ranked 27th on a list of Maryland's 50 largest employers.


"Before the acquisitions, we had to deal with the Easton printing plant, Baltimore composition and the publishing operations," Mr. Hutton said. "Now, all of a sudden you've got an operation in Munich -- in addition to that we've got international offices and joint venture companies, and we've actually got two locations in Philadelphia. We are now servicing multiple locations with financial services, with warehousing services, manufacturing, administrative services and so forth.

"There are pressures on people that I'm sure they didn't feel five years ago," Mr. Hutton said. "We are no longer a Maryland company with two locations: We are truly global."

A noteworthy achievement for a firm whose beginnings can be traced to a modest print shop established in downtown Baltimore by John H. Williams in 1890. Henry B. Wilkins became a member of the firm three years later, preceding by four years the addition of one of Mr. Williams' friends, Edward B. Passano.

Williams & Wilkins Co.'s printing facilities were destroyed in the Great Baltimore Fire of 1904. They were rebuilt and given the name Waverly Press. The Passano family began to leave its stamp when the firm was sold to Edward B. Passano, who shifted the business' focus away from general printing to the printing of scientific journals.

It would be another 68 years before the third generation of the Passano family would take charge, in the person of William M. Passano. He assumed command of a company that had annual revenues of about $18 million in 1972.

Mr. Passano took his family's firm down a new path the same year he was made president and chief executive officer.


"We went public in 1972, and the idea of going public was to stay private," he said. "We got our shares out in the market place so that the family members that weren't interested in the business didn't have to work here."

But the Passano family still held about 70 percent of the stock, until the owners of Urban & Schwarzenberg and Lea & Febiger were given shares in Waverly as part of the purchase of those firms. However, they entered into agreements to vote their stock in unison with the Passano family, which still owns a 40 percent share of the company.

As it had under his forebears, Waverly prospered under Mr. Passano's direction from 1972 until 1988. But critics say that while the firm was poised to expand, it was overly averse to risk-taking.

"I'd say that's true," Mr. Passano admitted. "It's not true today. There was a period of time when people were judged not so much by the risks that they took but by playing it safe.

"I don't want to see people taking foolish risks now, but we do have to invest in the future and that requires risk and sometimes things just don't work out. Publishing is risk taking by its very nature."

Asked if Mr. Hutton has pushed Waverly to become more aggressive and risk-prone, Mr. Passano answered: "Absolutely. I'm older -- I've been banged around more than he has. It's my money, too," he added with a laugh.


Another criticism leveled at Mr. Passano's regime is that Waverly Press tended to be the corporation's weak link. Because Waverly Press' expertise was in printing journals, it did a less than sterling job making books and encountered schedule and cost problems.

Mr. Passano, acknowledging the criticism, said Waverly Press' problems stemmed primarily from a failed attempt to unionize the Easton printing facility in 1987.

"We had had a very unhappy time in our Easton plant -- there was a lot of unrest," he said. "The quality suffered, the schedule suffered, morale was down. We lost some business and we weren't very profitable.

"Since then, we've got new leadership in running the plant," Mr. Passano said. "There's a high level of employee participation and we're running the plant much smarter and much better."

Observers give Mr. Passano high marks for running a business where -- corny as it sounds -- honesty and integrity are paramount. That philosophy extends to customer problems and complaints, as well as the company's internal operations.

Mr. Passano modestly notes that "I feel very strongly that integrity is something you never should compromise on. That doesn't mean that we're perfect -- God knows that we're not!"


Waverly also entered the realm of electronic publishing during Mr. Passano's tenure at the top.

Having endured the strain of single-handedly running a large publishing/printing business, in 1988 Mr. Passano was informed by his board of directors that he needed to find a successor. By that time he'd escorted Waverly Inc. from being a family-run, entrepreneurial company to one that had gone public and had a mix of non-family professional managers and executives with Passano-family links.

His board of directors suggested that it was time to go outside the Passano clan to find a new leader. Mr. Passano hand-picked Mr. Hutton, who was president of Simon and Schuster's professional information group in 1988.

"His credentials and ability so far exceeded anybody we had that it really wasn't an issue," Mr. Passano said.

One of Mr. Hutton's first tasks after coming aboard as president was to deal with the remaining rancor at Easton. He managed to smooth over ruffled feathers and before 1988 ended, oversaw the introduction of several new product lines, as well as the formation of an international division.

Waverly began to move with a boldness and decisiveness not previously observed. One company watching closely was Moseby Yearbook, one of Waverly's direct competitors.


"They are perceived as a quality medical publishing house," said Dennis Hofmaier, a Moseby executive. "They're aggressive in that they're out acquiring companies. They're building their business -- they're not sitting back waiting for things to happen -- they're out making things happen."

One thing that particularly excites Mr. Hutton is the potential for Waverly's electronic media products. They include video tapes used to help train allied health personnel and computer discs with data base applications.

"We're in a bunch of different things and trying to sort of feel around for where is the most appropriate place to concentrate for the longer term," Mr. Hutton said. "This year, I'm even predicting that we'll earn a small profit on our electronic media business. There aren't many people that can even say they're close to break-even on it."

Some things about Waverly will remain unchanged, though, like the firm's low-key community presence in Baltimore.

"This company has always been, I believe, a very strong supporter of the community," Mr. Passano said. "USF&G; and companies like that are much larger and they, no question about it, make a bigger splash. We've been more interested in doing what we do in a quiet way.

"There are a lot of things that you'd be very surprised that we do do and are involved in," he said.


The charitable work, which includes contributions of money and time to area health, human services and literacy organizations, is in keeping with the overall objectives Mr. Passano has mapped out for Waverly.

"I want to see this company remain in Baltimore, I want to see it continue to grow and prosper in the fields where we're currently growing, and that's in medical and scientific publishing," he said. "I want to see us remain an independent company.

"I think we're well on the road to doing that."