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, 1997

                            Commission File Number 0-6311

                                      WAVERLY, INC.
              (Exact name of Registrant as specified in its charter)

                        Maryland                           52-0523730
             (State or other jurisdiction of            (IRS Employer
             incorporation or organization)              Identification No.)

                 351 West Camden Street
                  Baltimore, Maryland                         21201
        (Address of principal executive offices)           (Zip Code)


Registrant's telephone number, including area code        410-528-4000



Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

 Title of Each Class                  Name of Each Exchange on Which Registered
 -------------------                  -----------------------------------------
Common Stock, $2 par value                     Nasdaq Stock Market


Indicate  by check  mark  whether  the  Registrant  (1) : has filed all  reports
required to be filed by Sections 13 or 15 (d) of the Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ X ]


                           [Cover page 1 of 2 pages.]
<PAGE>

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  was  $144,616,875,  or $39.00 per share as of February 14, 1998. The
number of shares  outstanding of the Registrant's  Common Stock was 9,039,576 as
of February 14, 1998.














































                           [Cover page 2 of 2 pages.]
<PAGE>

                                     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 and Urban &  Schwarzenberg.
Prior to  November,  1993 the  Company was also a major  printer of  periodicals
principally  for  medical and  scientific  associations.  The  Company  sold its
printing operations in November, 1993.

The Company's  products are sold to customers in over 50 countries.  The Company
markets and  distributes  its  products in several ways  including  direct mail,
internet   marketing,   telemarketing,   field  sales  forces  and   independent
distributors.

Financial  disclosure of sales by  geographical  area for the three years ending
December 31, 1997 appears in Note 13 - Revenues by Geographic Areas 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.

Agreement and Plan of Merger with Wolters Kluwer U.S. Corporation.

                  On February 10, 1998,  the Company,  entered into an Agreement
and Plan of Merger, dated as of February 10, 1998 (the "Merger Agreement"), with
Wolters Kluwer U.S. Corporation,  a Delaware corporation ("Wolters Kluwer"), and
MP  Acquisition  Corp.,  a Maryland  corporation  and an indirect  wholly  owned
subsidiary of Wolters  Kluwer  ("Newco"),  providing for the  acquisition of the
Company by Wolters Kluwer. Pursuant to the Merger Agreement, among other things,
on February 18, 1998, Newco commenced a tender offer for all outstanding  shares
of common  stock,  par value $2.00 per share (the  "Shares"),  of the Company at
$39.00  per Share net to the seller in cash (the  "Offer").  The  obligation  of
Newco to purchase Shares tendered in the Offer is conditioned  upon, among other
things,  two thirds of the  outstanding  Shares on a fully  diluted  basis being
tendered in the Offer and  applicable  waiting  periods  under United States and
relevant  foreign  antitrust laws having  expired or  terminated.  The Company's
Schedule  14D-9 related to the Offer was filed with the  Securities and Exchange
Commission  on February 18, 1998,  and mailed to the Company's  stockholders  of
record shortly thereafter, and is incorporated by reference herein.


                                      1
<PAGE>

Upon  consummation of the Offer,  the Merger  Agreement  further  provides that,
subject to the conditions set forth therein, Newco will be merged (the "Merger")
with and into the Company, with the Company being the surviving corporation (the
"Surviving  Corporation")  and  becoming a wholly  owned  subsidiary  of Wolters
Kluwer.  After the  effective  time of the Merger,  each issued and  outstanding
Share (other than treasury Shares,  Shares owned by Wolters Kluwer, Newco or any
wholly owned subsidiaries of Wolters Kluwer or the Company) will be canceled and
converted into the right to receive $39.00 in cash (or any higher price paid per
Share pursuant to the Offer).  Each issued and outstanding share of Newco common
stock will be converted into and become one fully paid and  nonassessable  share
of common  stock of the  Surviving  Corporation.  The Merger  Agreement  further
provides that prior to the effective  time of the Merger,  the Company shall pay
to the holder of each outstanding stock option, whether or not then exercisable,
an amount in respect thereof equal to the product of (A) the excess,  if any, of
the Offer  Price over the per Share  exercise  price of such  option and (B) the
number of Shares subject to such option. In the Merger  Agreement,  the Company,
Wolters Kluwer and Newco have made customary  representations and warranties and
additional  covenants in order to effectuate the Merger.  Wolters Kluwer,  nv, a
corporation  organized under the laws of the Netherlands and the ultimate parent
corporation of Wolters Kluwer and Newco,  has guaranteed the  performance of the
obligations of Wolters Kluwer and Newco under the terms of the Merger Agreement.

As previously reported the Merger is undergoing routine review by the Department
of  Justice,   Antitrust  Division,   under  the  Hart-Scott-Rodinao   Antitrust
Improvements  Act of 1976  ("HSR").  Wolters  Kluwer has  received a request for
additional  information  under  HSR,  and the  Company  has  received a parallel
request under the Department of Justice's Civil Investigative  Demand Authority.
The HSR  waiting  period  which  was set to  expire  on March 4,  1998,  will be
extended  until 10 days after  Wolters  kluwer  substantially  complies with its
request.

On March 17, 1998, Wolters kluwer announced that the expiration of the Offer had
been  extended to April 30,  1998.  The Offer had been  previously  scheduled to
expire on march 17, 1998.

In connection with the Merger  Agreement,  certain  stockholders of the Company,
including  certain  directors  and  officers of the Company  (collectively,  the
"Stockholders"),  have  entered into a Stock  Option and Tender  Agreement  (the
"Stock Option Agreement") with Wolters Kluwer and Newco dated as of February 10,
1998.  Pursuant to the Stock Option  Agreement,  the Stockholders have agreed to
tender their Shares in the Offer and have  granted  Wolters  Kluwer and Newco an
option  (a  "Stock   Option")  to  purchase   5,338,680   Shares   (representing
approximately  53.3% of the Shares  outstanding)  owned by the Stockholders at a
purchase  price  equal to the Offer  Price (or any  higher  price paid per Share
pursuant to the Offer).  The Stock Option becomes  exercisable in the event that
the Offer is terminated by Wolters Kluwer under certain  circumstances set forth
in the Stock  Option  Agreement  or the Offer  expires  without the  purchase of
Shares  thereunder  under  certain  circumstances  set forth in the Stock Option
Agreement.  Pursuant to the Stock Option Agreement, the Stockholders have agreed
to vote all their Shares (i) in favor of the Merger,  the Merger  Agreement  and
the transactions contemplated thereby, (ii) against any action or agreement that
would result in a material breach of a covenant,  representation  or warranty or
other obligation of the Company under the Merger Agreement and (iii) against any
action or agreement that would materially  impede,  interfere with or attempt to
discourage  the  Offer  or  the  Merger.  In  the  event  that  certain  of  the
Stockholders do not vote as described above, such  Stockholders  shall be deemed
to have granted Wolters Kluwer a proxy to vote his, her or its Shares.
                                       2
<PAGE>


                             Description of Specific
                              Publishing Businesses

Waverly  publishes  periodicals,  books and electronic  media to the health care
market.  Products  are sold to  students  and  schools  in  medicine  and  other
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 1997,  Waverly  published 29 such
periodicals.

In 1980 the Company  published 36 periodicals  compared to the current roster of
77 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, 1997 and 1996 the Company's paid subscriber base was  approximately
389,000 and 381,000 respectively.


                                        3                                       
<PAGE>


Revenues generated from periodical publishing come from three principal sources.
Subscription  fees  account  for  approximately  57% of the  total.  Advertising
revenues,  principally from pharmaceutical and medical equipment  manufacturers,
contribute  approximately  24% of the total.  The  remaining 19% is derived from
sales of  reprint  articles,  mail  lists,  annual  bound  volumes  and  special
supplement insert issues from pharmaceutical  firms. The Company publishes three
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  worldwide 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  45%  of  its  titles  for  the  student
marketplace   while  the  remaining  55%  of  titles  are  directed  to  medical
practitioners and others engaged in the health care industry. Over the years the
Company  has  successfully  built a base of product  that  continues  in updated
revised editions. It is not uncommon for some titles to continue for 10-15 years
beyond its initial  publication,  particularly  for subjects in basic  sciences,
atlases and reference products.  In 1997 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,  independent  distributors  and joint venture sales
groups.  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.
                                        4
<PAGE>

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  nonprofessionals.  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 in other health care related
industries.  Products  are  marketed  under  various the trade  names  including
Williams & Wilkins , Medi-Sim, Stedman's, LifeArt, and de'MEDICI.

Approximately 400 products are sold in various types of formats including print,
software,  video,  computer assisted  instruction ("CAI " ), 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,  with four firms currently accounting for
at least 40% of total revenues. There are well over 150 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,

                                        5
<PAGE>

training , and other professional learning needs of the customer, (2) to attract
quality authors and acquire and develop valuable publication properties,  (3) to
publish products faster and 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.

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,  1997,  the Company  had leases at the  following  principal
locations:
<TABLE>
<CAPTION>

                                                                Square Feet   (000's) Annual    Expiration Dates
                Location                           Use                             Cost
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>       <C>                       <C>    
Camden Yards South                            Office space        72,400    $1,046 in 1996            2005
Warehouse                                                                   increasing to a
351 W. Camden Street                                                        maximum of $1,182
Baltimore, Md. 21201                                                        in 2004.

Urban & Schwarzenberg - Europe                Office space,       40,812           592            Various with
                                              Warehouse and                                     earliest in 1998
                                               Bookstores

Waverly Europe - London                       Office space         3,700            70                2002

Media, Pennsylvania                           Office space         7,500           165                1999

Williams & Wilkins Asia Pacific             Office space and      11,700           154                1998

Limited - Hong Kong                             Warehouse

Williams & Wilkins Asia Pacific               Office space           710            23                1998
Limited - Thailand
</TABLE>

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 1997.

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 1997.

                                         6
<PAGE>

                                     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 14, 1998,
there were  9,039,576  shares  outstanding  (10,013,326  if  adjusted  for stock
options  exercisable  within 60 days after the  record  date).  Including  stock
options exercisable within 60 days, 3,951,649, or 43.2%, are owned by members of
the Passano  family,  802,500 shares,  or 8.8%, are owned by Michael Urban,  and
495,000 shares,  or 5.4%, 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 14, 1998.  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>

                -------------------1997-----------------          ------------------1996-----------------
    Quarter         High           Low        Dividends              High           Low         Dividends
------------------------------------------------------------------------------------------------------------
         <S>          <C>           <C>             <C>                <C>            <C>             <C>

          First       $ 25.25       $ 17.75         $.065              $ 24.50        $ 20.00         $.060
         Second         22.50         19.63          .070                24.50          19.75          .065
          Third         25.63         21.25          .070                26.25          20.00          .065
         Fourth         47.25         24.00          .070                29.50          22.75          .065
------------------------------------------------------------------------------------------------------------
           Year       $ 47.25       $ 17.75         $.275              $ 29.50        $ 19.75         $.255
============================================================================================================
</TABLE>





                                        7
<PAGE>
<TABLE>

Item 6.  Selected Financial Data.

Key Financial Data
Five-Year Financial History*
(in thousands of dollars except ratios and per share amounts)
<CAPTION>

Year Ended December 31,                              1997          1996           1995           1994         1993
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>            <C>          <C>    
Income Statement Data:
Revenues                                        $ 172,386     $ 170,961      $ 156,329      $ 132,064    $ 121,684
Income (loss) from  continuing
operations                                          7,096         6,347          5,305          4,888      (2,615)
Discontinued printing operations                        -             -              -          (228)        (607)
Net income (loss)                                   7,096         6,347          5,305          4,660      (2,008)

Data Per Common Share:
Income (loss) from continuing
operations - basic                               $    .79      $    .71       $    .60       $    .56    $   (.30)
Discontinued printing operations - basic                -             -              -         (0.03)         0.07
Net income (loss) - basic                        $    .79      $    .71       $    .60       $    .53    $   (.23)
Income (loss) from  continuing
  operations - diluted                           $    .75      $    .68       $    .57       $    .54    $   (.30)
Discontinued printing operations -
  diluted                                               -             -              -          (.03)          .07
Net income (loss) - diluted                      $    .71      $    .68       $    .57       $    .51    $   (.23)
Shareholders' equity (book value)                 $  6.52       $  6.05        $  5.64        $  5.10     $   4.65
Cash dividends paid                               $  .275       $  .255        $  .235        $  .220     $   .220
Average common shares - Basic (thousands)           8,943         8,902          8,844          8,720        8,674
Average common shares - Diluted (thousands)         9,449         9,355          9,245          9,052        8,674

Balance Sheet Data:
Total assets                                    $ 127,477     $ 126,597      $ 125,905      $ 120,635    $ 114,376
Investment in discontinued
 printing operations                                    -             -              -          1,000        2,903
Working capital                                    29,633        26,713         22,211         25,832       26,495
Current ratio                                         1.6           1.5            1.4            1.5          1.5
Long-term debt                                      1,196         2,595          3,680          7,348        8,435
Shareholders' equity                               58,522        54,004         49,896         44,444       40,298
===================================================================================================================
<FN>

*  This financial data should be read in conjunction with the Consolidated Financial Statements        and
related Footnotes on pages 21 through 37.
</FN>
</TABLE>

                                        8
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

1997 COMPARED WITH 1996
-----------------------

Total revenues in 1997 were $172.4 million compared with $171.0 million in 1996,
an  increase  of  approximately  1%.  Reported  revenues  were  affected  by the
significant  decline in the value of the German mark to the U.S.  dollar,  which
dropped 13% from the prior-year  period.  Without the impact of foreign currency
total worldwide revenues increased 4%.

Book  Publishing  revenues  were  $100.3  million in 1997  compared  with $105.8
million in 1996,  a decline of 5%.  Without the effect of the  foreign  currency
valuation,  Book  Publishing  revenues  were equal to the prior  year.  Revenues
increased 2% in domestic markets,  in part because of the acquisition of certain
medical  titles from  Igaku-Shoin  Medical  Publishers,  Ltd., a New  York-based
publisher.  Book Publishing  revenues from  international  markets  declined 11%
owing to the aforementioned  currency factor and the difficult market conditions
in the Far East.

Periodical  Publishing  revenues  were $63.4 million in 1997 compared with $57.8
million in 1996, an increase of nearly 10%.  Subcription-based revenue increased
8%  because  of price  increases.  Advertising  revenues  advanced  14% due to a
greater volume of business,  while other journal publishing revenue increased by
8%.  The  Company  acquired  certain  newsletters  in  1997,  which  contributed
nominally to growth this year.  Professional Learning Systems Division ( "PLS" )
revenues  were $8.7  million in 1997  compared  with $7.3  million  in 1996,  an
increase of 20%. The increase came from new releases of established products and
the  further  penetration  of  its  new  product  line,   de'MEDICI  Systems,  a
hospital-based interactive training system.

Cost of Sales was  $102.9  million  in 1997 and  $102.0  million  in 1996.  As a
percent of sales, costs were 59.7% for both years. Book Publishing cost of sales
was 57.5% in 1997 and 58.8% in 1996. The year-to-year improvement came from cost
efficiencies  in textbook  publishing  and lower  obsolescence  in clinical book
publishing.  Periodical  Publishing cost of sales was 68.0% in 1997 and 67.3% in
1996.  The  slightly  higher cost margin in 1997 is due  principally  to startup
costs  associated with the signing of a five-year  publishing  contract with the
American Heart Association, which is scheduled to begin in 1998. PLS cost margin
was 32.1% in 1997 and 33.6% in 1996.  Margins improved from the sales of new
releases of established product lines.

Selling and distribution  expenses were $40.7 million, or 23.6% of revenues,  in
1997 compared with $40.5 million,  or 23.7% of revenues,  in 1996. Domestic Book
Publishing  incurred  lower  costs  because of the timing of  promotion  for new
publications. International Book Publishing incurred higher cost margins because
of lower volume. Periodical publishing cost margins were equal to last year. PLS
Group costs increased because of the expansion of the sales force.

General and Administrative expenses were $10.4 million in 1997 and $12.9 million
in 1996.  As a percent of revenue,  expenses were 6.0% in 1997 and 7.5% in 1996.
Lower  employee  benefit  costs and bad debt  expense in 1997 and the absence of
certain  onetime costs and legal fees charged in 1996 are the principal  factors
for the year-to-year reductions in expense.


                                        9
<PAGE>

Other Income was $92,000 in 1997 and $234,000 in 1996. Loss on foreign  exchange
transactions  in 1997 is the  principal  factor for the lower  income.  Interest
expense was $0.8  million in 1997 and $1.1 million in 1996.  Average  borrowings
for  short-term  financing  were  lower in 1997,  and  principal  repayments  on
long-term debt reduced borrowing costs.

Equity in earnings of  affiliated  entities was $183,000 in 1997 and $906,000 in
1996. New joint ventures in Europe incurred startup losses in 1997. In addition,
existing  entities  in Japan and  Germany  recorded  lower  profits  because  of
difficult market conditions and lower foreign currency valuations.

Income taxes were $4.0 million in 1997 and $3.2 million in 1996.  The  effective
tax rate was 36.4% in 1997 and 36.8% in 1996.

Net income was $7.1  million  in 1997 and $6.3  million in 1996.  Domestic-based
publishing operations improved  significantly over the prior year. Earnings from
international-based  operations were below last year because of difficult market
conditions in Southeast Asia and Germany.


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% primarily  because of 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%
because of 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,

                                        10
<PAGE>

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  because of an  increased  revenue  base.  PLS
experienced  an  increase  as a  percentage  of sales  because  of the  national
roll-out 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.

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.

Net  income 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.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Net cash  provided by  operations  was $7.7 million in 1997  compared  with $7.6
million  in 1996.  Net  income  before  noncash  charges  such as  depreciation,
amortization,  and deferred taxes  generated $15.5 million in 1997 compared with
$11.8 million in 1996.  Increases in current assets, net of increases in current
liabilities,  were $7.7  million  in 1997  compared  with $4.0  million in 1996.
Increases in trade receivables and early  contractual  payments to societies for
journal editorial and royalty advances in 1997 are the principal reasons for the
use of cash.  The Company  spent $2.3 million on capital  expenditures  in 1997,
primarily to upgrade and enhance computer hardware and communication systems.

At  December  31,  1997 the  Company  carried  total  short-term  and  long-term
borrowings of $3.7 million  compared with $6.4 million at December 31, 1996. The
Company  maintains  bank lines of $39.2  million  worldwide  and believes  these
amounts are adequate to provide  necessary  working  capital for future  growth.
During 1998 the Company will retire $1.2  million of long-term  debt and expects
to have a single  long-term  bank note equal to $1.2 million  outstanding at the
end of 1998.
                                        11
<PAGE>

At December  31, 1997 the Company  recorded  $2.9 million of deferred tax assets
having to do with future tax benefits related to postretirement  obligations and
inventory-associated  deductions.  Based  on the  Company's  long-term  earnings
performance,  the  deferred  tax  asset  was  recorded  free  of  any  valuation
allowance.

In 1998 The Company  expects to  continue  to invest in working  capital for the
further  development  of new  products,  maintain and upgrade  necessary  system
computer  hardware  and  software  to  support   operations,   and  to  purchase
publication  rights of titles to broaden  product lines.  The Company expects to
finance these activities through cash flow from operations.

YEAR 2000
---------

The Year 2000 raises a general concern regarding the capability of the Company's
hardware  and  software  to  meet  the  requirements  of  date  comparisons  and
calculations  across  the  century  boundary.  Therefore  in 1997,  the  Company
established a task force, under the auspices of the Audit Committee of the Board
of Directors, to perform an analysis of its internal Year 2000 issues as well as
the external organizations whose systems may cause business interruptions to the
Company if their Year 2000 issues aren't resolved.  To that end, the Company has
commenced  necessary  remediation  programs  for its  internal  systems  and has
established  procedures  to  identify,  notify  and test  external  organization
systems for compliance.  The costs associated with this project will be expensed
as  incurred.  At this time,  the Company does not believe this task will have a
material impact on the financial statements in future years.

Item 7A.  Quanitative and Qualitative Disclosures about Market Risk.

Not Applicable.

Item 8. Financial Statements and Supplementary Data.



                                        12
<PAGE>

                        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, 1997 and 1996, and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended December 31, 1997.  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  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, 1997 and 1996, and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.


                                                     /s/Coopers & Lybrand L.L.P.
                                                     ---------------------------
Baltimore, Maryland                                  Coopers & Lybrand L.L.P.
January 30, 1998, except for Note 16,
  as to which the date is February 10, 1998





                                        13
<PAGE>
<TABLE>

Consolidated Balance Sheets
(in thousands of dollars except per share amounts)
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
At December 31,                                                                            1997               1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>    
                                     ASSETS
Current  assets
   Cash and cash equivalents                                                        $     1,575        $     5,327
   Accounts receivable, less allowance for doubtful accounts
   ($1,438 and $1,493, respectively)                                                     43,843             40,385
   Inventories                                                                           29,512             30,910
   Current deferred taxes                                                                 2,429              2,909
   Prepaid expenses                                                                       5,115              1,172
-------------------------------------------------------------------------------------------------------------------
Total current assets                                                                     82,474             80,703
-------------------------------------------------------------------------------------------------------------------
Property and equipment
   Land                                                                                     678                792
   Buildings and improvements                                                             2,188              2,393
   Office and computer equipment                                                         12,434             11,356
-------------------------------------------------------------------------------------------------------------------
                                                                                         15,300             14,541
   Less:  accumulated depreciation                                                      (8,283)            (6,701)
-------------------------------------------------------------------------------------------------------------------
Net property and equipment                                                                7,017              7,840
   Intangible assets                                                                     23,602             23,912
   Electronic product development assets                                                  4,593              4,439
   Investments in affiliated entities                                                     2,875              3,065
   Prepaid pension                                                                        6,141              5,825
   Deferred taxes                                                                           459                662
   Other assets                                                                             316                151
-------------------------------------------------------------------------------------------------------------------
Total assets                                                                         $  127,477         $  126,597
===================================================================================================================




                                        14
<PAGE>

-------------------------------------------------------------------------------------------------------------------
At December 31,                                                                            1997               1996
-------------------------------------------------------------------------------------------------------------------
                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
   Line of credit borrowings                                                        $     1,293        $     1,366
   Current portion of long-term debt                                                      1,200              2,400
   Accounts payable                                                                      18,014             15,232
   Accrued expenses                                                                       3,550              5,299
   Royalties payable                                                                      9,296             10,541
   Unearned subscription revenues                                                        18,418             17,791
   Income taxes payable                                                                   1,070              1,361
-------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                52,841             53,990
-------------------------------------------------------------------------------------------------------------------
   Long-term debt                                                                         1,196              2,595
   Unfunded pension obligation                                                            2,932              3,369
   Postretirement benefit obligation                                                     11,525             11,719
   Other liabilities                                                                        461                920
-------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                        68,955             72,593
-------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Shareholders' equity
   Preferred  stock 500,000 shares  authorized;  none issued
   Common stock $2 par value; 12,000,000 shares authorized,
    9,000,450 and 8,923,138 shares issued and outstanding,
    respectively                                                                         18,001             17,846
   Additional paid-in capital                                                            13,936             12,574
   Retained earnings                                                                     27,698             23,063
   Foreign currency translation adjustments                                             (1,113)                521
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                               58,522             54,004
-------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                            $ 127,477          $ 126,597
===================================================================================================================
<FN>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</FN>
</TABLE>



                                        15
<PAGE>
<TABLE>

Consolidated Statements of Operations
(in thousands of dollars except per share amounts)
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
For the year ended December 31,                                                1997            1996           1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>            <C>      
Revenues                                                                  $ 172,386       $ 170,961      $ 156,329
Costs and expenses
  Cost of sales                                                             102,909         102,027         94,015
  Selling and distribution                                                   40,700          40,540         37,133
  General and administrative                                                 10,355          12,899         11,946
  Depreciation and amortization                                               6,880           6,053          5,292
-------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                    160,844         161,519        148,386
-------------------------------------------------------------------------------------------------------------------
Operating income                                                             11,542           9,442          7,943
-------------------------------------------------------------------------------------------------------------------
  Other income                                                                   92             234            808
  Interest expense                                                            (766)         (1,065)        (1,201)
-------------------------------------------------------------------------------------------------------------------
Income before income taxes and earnings of
  affiliated entities                                                        10,868           8,611          7,550
Income tax expense                                                          (3,955)         (3,170)        (2,561)
Equity in the earnings of affiliated entities                                   183             906            316
-------------------------------------------------------------------------------------------------------------------
Net income                                                                $   7,096       $   6,347      $   5,305
===================================================================================================================
Earnings per common share and common share equivalents:
Basic                                                                    $      .79     $       .71     $      .60
Diluted                                                                  $      .75     $       .68     $      .57
===================================================================================================================
Weighted average number of common shares
outstanding                                                               8,943,118       8,902,020      8,844,652
Dilutive potential common shares                                            505,963         452,961        400,642
-------------------------------------------------------------------------------------------------------------------

Diluted weighted-average shares outstanding                               9,449,081       9,354,981      9,245,294
===================================================================================================================
<FN>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</FN>
</TABLE>


                                        16
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Shareholders' Equity
(in thousands of dollars except per share amounts)
--------------------------------------------------------------------------------------------------------------------
For the three years ended December 31, 1997
--------------------------------------------------------------------------------------------------------------------
                                   Common        Common      Additional                    Currency
                                    Stock        Stock         Paid-in       Retained     Translation
                                   Shares                      Capital       Earnings     Adjustment      Total
--------------------------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>            <C>        <C>                <C>        <C>             
Balance, December 31, 1994          4,371      $ 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            61          122             937                                    1,059
  Common stock issued
   for director fees                    1            3              47                                       50
  Tax benefits related
   to exercise of                                     
   atock options                                                   364                                      364
  Foreign currency                                                                               
   translation
   adjustments                                                                                  755         755
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995          4,433        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            41           81             427                                      508
  Common stock issued
   for director fees                    2            4              60                                       64
  Two-for-one common
   stock split (Note 2)             4,447        8,895                       (8,895)                          -
  Tax benefits related
   to exercise of
    stock options                                                  144                                      144
  Foreign currency
   translation                                                                                       
   adjustments                                                                                 (683)       (683)
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996          8,923       17,846          12,574       23,063             521      54,004



                                        17
<PAGE>

--------------------------------------------------------------------------------------------------------------------
                                   Common                    Additional                    Currency
                                    Stock        Common        Paid-in       Retained     Translation
                                   Shares        Stock         Capital       Earnings     Adjustment      Total
--------------------------------------------------------------------------------------------------------------------
  Net income                                                                  7,096                       7,096
  Cash dividends $.275
   per share                                                                 (2,461)                     (2,461)
  Exercise of stock options            75          150             744                                      894
  Common stock issued
   for director fees                    2            5              55                                       60
  Tax benefits related
   to exercise of
   stock options                                                   563                                      563
  Foreign currency
   translation                                                                    
   adjustments                                                                               (1,634)     (1,634)
   adjustments
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997          9,000     $ 18,001        $ 13,936     $ 27,698         $(1,113)   $ 58,522
====================================================================================================================
<FN>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</FN>
</TABLE>


                                        18
<PAGE>
<TABLE>

Consolidated Statements of Cash Flows
(in thousands of dollars)
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
For the year ended December 31,                                                1997            1996           1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>            <C>     <C>
Cash flows from operating activities
Net income                                                                 $  7,096        $  6,347       $  5,305
Adjustments to reconcile net income to net cash from
operating activities
  Postretirement benefit obligation                                             350             574            665
  Equity in the earnings of affiliated entities                               (183)           (906)         ( 316)
  Depreciation and amortization                                               6,880           6,053          5,292
  Deferred income taxes                                                       1,169           (984)          2,229
  Net periodic pension expense (credit)                                        (91)             521          (395)
  Other                                                                         209             180             71
Change in assets and liabilities, adjusted for
  the effect of acquisitions and divestitures
  Accounts receivable                                                       (4,944)         (1,241)        (3,098)
  Inventories                                                                   227           (324)        (7,173)
  Prepaid expenses                                                          (3,874)           (125)             36
  Accounts payable                                                            4,401           (618)          1,749
  Accrued expenses                                                          (1,957)         (1,314)        (1,522)
  Income taxes payable                                                        (220)         (1,752)          (193)
  Royalties payable                                                         (1,010)           1,234          1,541
  Unearned subscription revenues                                                624             981        (2,618)
  Other long-term liabilities                                               (1,002)         (1,007)          (627)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operations                                               7,675           7,619            946
-------------------------------------------------------------------------------------------------------------------






                                        19
<PAGE>



-------------------------------------------------------------------------------------------------------------------
For the year ended December 31,                                                1997            1996           1995
-------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
  Proceeds from sale of discontinued operations                                   -               -          1,000
  Purchase of property and equipment                                        (2,186)         (1,579)        (4,862)
  Acquisition of businesses and publishing properties                       (3,672)           (211)        (6,269)
  Additions to electronic product development assets                        (2,158)         (2,364)        (1,396)
  Decrease in investments in affiliated entities                                 86             180            310
  Proceeds from sale of marketable securities                                     -               -         10,312
  Purchases of marketable securities                                              -               -        (1,000)
-------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities                                 (7,930)         (3,974)        (1,905)
-------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
  Net borrowings (payments) under short-term lines of credit                    128           1,166          (960)
  Repayment of long-term debt                                               (2,397)         (2,475)        (2,278)
  Common stock dividends paid                                               (2,461)         (2,272)        (2,081)
  Proceeds from exercise of stock options (including tax benefit)             1,457             652          1,059
-------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities                                 (3,273)         (2,929)        (4,260)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                        (3,528)             716        (5,219)
Effect of exchange rates on cash and cash equivalents                         (224)              31            197
Cash and cash equivalents beginning of year                                   5,327           4,580          9,602
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year                                       $ 1,575         $ 5,327        $ 4,580
===================================================================================================================
<FN>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</FN>
</TABLE>


                                        20
<PAGE>

Notes to Consolidated Fianacial Statements

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. 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.

         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   $2,415,000,
$2,510,000, and $2,296,000, for 1997, 1996, and 1995, respectively.

The Company reviews property and equipment for the impairment whenever events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be recoverable.

         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 lives 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
$1,906,000, $1,234,000, and $802,000, for 1997, 1996, and 1995, 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
$285,000, $286,000, and $310,000, for 1997, 1996, and 1995, 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
$1,668,000, $1,546,000, and $1,456,000, for 1997, 1996, and 1995, respectively.

Goodwill  represents  the cost in excess of fair value of the net  tangible  and
identifiable  intangible assets of companies acquired in business  combinations.
Goodwill is amortized on a  straight-line  basis over the periods  benefited not
exceeding 40 years.  Amortization  charged to  operations  amounted to $584,000,
$416,000, and $318,000, for 1997, 1996, and 1995, respectively.


                                        22
<PAGE>

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  $12,188,000  and  $11,768,000  at  December  31,  1997  and  1996,
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  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings  Per Share"  (SFAS 128) in 1997.  Basic  Earnings  Per Share  (EPS) is
calculated  by dividing  net  earnings  by the  weighted-average  common  shares
outstanding  during the period.  Diluted EPS reflects the potential  dilution to
basic EPS that could occur upon  conversion or exercise of securities,  options,
or other such items, to common shares using the treasury stock method based upon
the  weighted-average  fair  value of the  Company's  common  shares  during the
period.  Earnings per share for prior  periods have been  restated in accordance
with the provisions SFAS 128.

         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 have been restated for all years presented.

         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.

         Stock-Based Compensation
         ------------------------
In October 1995, the FASB issued Statement of Financial  Standards No. 123 (SFAS
123),  "Accounting for Stock-Based  Compensation."  As permitted under SFAS 123,
the  Company  has  continued  to account  for its  stock-based  compensation  in
accordance  with the  provisions of Accounting  Principles  Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees."

Note 3  Investments in Affiliated Entities

The Company has  noncontrolling  interests in various affiliated  entities.  The
more significant investments are in Japan, Australia, Spain, France and Germany.

<TABLE>
<CAPTION>

Equity in the earnings of affiliated entities consists of the following:

-------------------------------------------------------------------------------------------------
(in thousands)                                             1997            1996             1995
-------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>              <C>  
Equity in earnings (loss)
Verlegerdienst Munchen (Germany)                          $  67           $ 276            $ 215
Mosby-Williams & Wilkins Pty., Ltd.
(Australia)                                                  22             101               37
Igaku-Shoin MYW, Ltd. (Japan)                                75             200              100
Waverly Hispanica S.A. (Argentina)                          138             127               25
Masson-Williams & Wilkins (France)                        (138)               -                -
Masson-Williams & Wilkins Espana (Spain)                   (91)               -                -
Quality Medical Publishing
(United States)                                             110            202*             (61)
-------------------------------------------------------------------------------------------------
Total equity in earnings                                  $ 183           $ 906            $ 316
=================================================================================================
<FN>
*Represents tax benefits previously not recognized.
</FN>
</TABLE>





                                        24
<PAGE>


Note 4  Intangible Assets
<TABLE>
<CAPTION>

Intangible assets consisted of the following at December 31:

---------------------------------------------------------------------------------------
(in thousands)                                                  1997              1996
---------------------------------------------------------------------------------------
<S>                                                          <C>               <C>    
Goodwill                                                     $11,476           $10,961
Publication agreements                                        23,113            21,386
Subscription lists and noncompete
agreements                                                     3,397             2,417
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Subtotal                                                      37,986            34,764
Accumulated amortization                                    (14,384)          (10,852)
---------------------------------------------------------------------------------------
Total                                                        $23,602           $23,912
=======================================================================================

</TABLE>


Note 5  Inventory
<TABLE>
<CAPTION>

Inventories at December 31 consist of the following:

---------------------------------------------------------------------------------------
(in thousands)                                                  1997              1996
---------------------------------------------------------------------------------------
<S>                                                         <C>               <C>     
Finished goods                                              $ 23,092          $ 24,318
Work-in-process                                                6,255             6,116
Raw materials                                                    165               476
---------------------------------------------------------------------------------------
                                                            $ 29,512          $ 30,910
=======================================================================================
</TABLE>


If the FIFO  method of  inventory  had been  used by the  Company  for  domestic
inventory, the carrying value would have been $1,285,000 higher than reported at
December 31, 1997 and $655,000 higher than reported at December 31, 1996.

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 operations in the period of determination.  Charges to
income amounted to $2,447,000,  $2,906,000,  and $2,422,000, for 1997, 1996, and
1995, respectively.

Note 6  Debt

The Company maintains uncollateralized lines of credit borrowing arrangements of
$39,200,000  with various banks. In 1997,  interest rates under these agreements
ranged  from 6.7% to 7.3%.  At  December  31,  1997  unused bank lines of credit
amounted  to  approximately  $37,900,000.  There  are  no  compensatory  balance
arrangements or commitment fees in connection with these arrangements.




                                        25
<PAGE>
<TABLE>
<CAPTION>

Long-term debt at December 31 consists of the following:

----------------------------------------------------------------------------------------
(in thousands)                                                   1997              1996
----------------------------------------------------------------------------------------
<S>                                                           <C>               <C>    
Term loans                                                    $ 2,312           $ 4,898
Other                                                              84                97
----------------------------------------------------------------------------------------
                                                                2,396             4,995
Less current maturities                                       (1,200)           (2,400)
----------------------------------------------------------------------------------------
Long-term debt                                                $ 1,196           $ 2,595
========================================================================================
</TABLE>


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,  repurchase the Company's  common stock, among others.  In 
addition,  the  financing  agreement includes  prepayment  penalties.  The
Company's German  subsidiary has a loan of $1,112,000  with a lending
institution at an annual rate of 4.65%.  The loan is collateralized  by 
Company-owned  real estate with a fair market value in excess
of the principal.  The loan is due to be paid in one installment on December 31,
1999.  Estimated fair values of debt obligations  approximate the carrying value
at December 31, 1997 and 1996, respectively.

Long-term maturities,  of the term loans, in each of the two years subsequent to
December 31, 1997, are $1,200,000 in 1998 and $1,112,000 in 1999.

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 $766,000,
$1,065,000, and $1,201,000,  for 1997, 1996, and 1995, respectively.

Note 7  Income Taxes
<TABLE>
<CAPTION>

Income before  income taxes for the years ended  December 31 was taxed under the
following jurisdictions:

----------------------------------------------------------------------------------------------
(in thousands)                                             1997            1996          1995
----------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>           <C>    
Domestic                                                $10,232         $ 6,212       $ 5,223
Foreign                                                     636           2,399         2,327
----------------------------------------------------------------------------------------------
Total                                                   $10,868         $ 8,611       $ 7,550
==============================================================================================
</TABLE>



                                        26
<PAGE>
<TABLE>
<CAPTION>

Income tax expense is presented below:

------------------------------------------------------------------------------------------------
(in thousands)                                              1997           1996            1995
------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>             <C>    
Current provision
  U.S. Federal                                           $ 2,255        $ 2,124         $   843
  State                                                      429            405             161
  Foreign                                                    588          1,828             (8)
------------------------------------------------------------------------------------------------
Total current                                              3,272          4,357             996
================================================================================================
Deferred provision
  U.S. Federal                                               779          (185)             326
  State                                                      185          (270)              94
  Foreign                                                  (281)          (732)           1,145
------------------------------------------------------------------------------------------------
Total deferred                                               683        (1,187)           1,565
------------------------------------------------------------------------------------------------
Income tax
  expense                                                $ 3,955        $ 3,170         $ 2,561
================================================================================================
</TABLE>




                                        27
<PAGE>
<TABLE>
<CAPTION>

Deferred tax assets (liabilities) arising from differences in accounting methods
for book and tax purposes at December 31 consist of the following:


-----------------------------------------------------------------------------------------
(in thousands)                                                    1997              1996
-----------------------------------------------------------------------------------------
<S>                                                           <C>               <C>     
Deferred tax assets:
  Postretirement obligation                                   $  4,495          $  4,607
  Inventory related                                              1,746             1,704
  Property and equipment                                             -               104
  Printing Division sale                                            18               111
  Asset provisions                                                 885               863
  NOL benefits                                                     753               839
  Group insurance                                                  133               163
  IRS settlements                                                  396               425
  Contributions                                                      -               363
  Pension liability                                                 84               147
  Undistributed profits                                              -               141
  Other, net                                                       263               275
-----------------------------------------------------------------------------------------
Total deferred tax assets                                        8,773             9,742
-----------------------------------------------------------------------------------------
Deferred tax liabilities:
  Prepaid pension                                              (2,308)           (2,181)
  Excess of tax over book amortization                         (1,660)           (1,915)
  U & V gain                                                     (762)           (1,129)
  Inventory related                                              (530)             (631)
  Property and equipment                                         (169)                 -
  Undistributed profits                                          (284)             (112)
  Book return provision                                           (97)             (114)
  Other, net                                                      (75)              (89)
-----------------------------------------------------------------------------------------
Total deferred tax liabilities                                 (5,885)           (6,171)
-----------------------------------------------------------------------------------------
Net deferred tax asset                                        $  2,888          $  3,571
=========================================================================================
</TABLE>


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>
<TABLE>
<CAPTION>

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)                                               1997          1996            1995
------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>             <C>   
U.S. Federal statutory
  tax expense:                                           $  3,695      $  2,928        $  2,567
Increase in tax rate resulting, from state
  income taxes, net of federal tax benefit                    408            79              79
Effect of foreign taxes                                       137           473             346
Foreign sales corporation
  tax benefit                                               (325)         (320)           (287)
Contributions                                                (49)          (46)            (37)
Other, net                                                     89            56           (107)
------------------------------------------------------------------------------------------------
Income tax expense                                       $  3,955      $  3,170        $  2,561
================================================================================================
Effective tax rate                                          36.4%         36.8%           33.9%
================================================================================================
</TABLE>


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 $563,00 for 1997, $144,000 for 1996 and $364,000 in 1995.

Cash outflows from operating activities include income taxes paid of $3,005,000,
$4,883,000, and $603,000 for 1997, 1996, and 1995, respectively.

Note 8  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, 1997,  1996, and 1995 were determined  using assumed
weighted  average  discount  rates of 6.9%,  7.7%, and 7.0%,  respectively.  The
assumed long-term rate of compensation increase is 5.0% for 1997, 5.0% for 1996,
and 5.5% for 1995. 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>
<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------
(in thousands)                                                1997           1996             1995
---------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>              <C>    
Service cost benefits earned
  for the period                                            $  403         $  430           $  269
Interest cost on projected
  benefit obligation                                         1,932          1,824            1,697
Amortization of loss and
  prior service cost                                          (12)           (12)             (12)
Return on plan assets                                      (2,679)        (2,399)          (2,062)
Amortization of unrecognized net gain at date
of initial application of FAS 87                                 -              -            (680)
Amortization of unrecognized net loss                           39            300                -
---------------------------------------------------------------------------------------------------
Net periodic pension expense (credit)                      $ (317)         $  143          $ (788)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>


The funded status of the plan at December 31 is presented below:


------------------------------------------------------------------------------------------------
(in thousands)                                                1997           1996          1995
------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>           <C>    
Actuarial present value of:
  Vested benefit  obligation                             $(26,392)      $(23,211)     $(24,249)
  Nonvested benefit obligation                               (398)          (329)         (385)
------------------------------------------------------------------------------------------------
Accumulated benefit obligation                            (26,790)       (23,540)      (24,634)
Effect of projected actuarial increases                    (1,850)        (1,578)       (1,821)
------------------------------------------------------------------------------------------------
Actuarial present value of projected
  benefit obligation                                      (28,640)       (25,118)      (26,455)
Market value of plan
  assets at end of period                                   35,368         30,814        27,404
------------------------------------------------------------------------------------------------
Excess of plan assets over liabilities                       6,728          5,696           949
Unrecognized net loss (gain)                                 (587)            129         5,018
------------------------------------------------------------------------------------------------
Prepaid pension expense                                     $6,141         $5,825        $5,967
================================================================================================
</TABLE>


         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 1997,  1996,  and 1995 was  $226,000,
$378,000, and 393,000, 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 year of service. Employees are encouraged to make contributions to
the Plan. The Company matches 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  related expenses of $237,000,  $213,000,  and
$207,000, in 1997, 1996, and 1995, 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 $467,000, $475,000, and $409,000, in
1997, 1996, and 1995, respectively.

Summary information on the Company's postretirement benefit plan at December 31,
1997 and 1996, is presented below:
<TABLE>
<CAPTION>

Accumulated postretirement benefit obligation:


-------------------------------------------------------------------------------------------
(in thousands)                                                      1997              1996
-------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>     
Retirees                                                         $ 6,119          $  6,409
Fully eligible, active plan participants                           5,406             5,310
-------------------------------------------------------------------------------------------
Accrued postretirement
  benefit obligation                                            $ 11,525          $ 11,719
===========================================================================================
</TABLE>




                                        31
<PAGE>
<TABLE>
<CAPTION>

Net periodic  postretirement  benefit cost included the following components for
the years ended December 31:

-------------------------------------------------------------------------------------------------
(in thousands)                                                 1997           1996          1995
-------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>   
Service cost of benefit earned                               $   33         $   44        $   37
Interest cost on accumulated
  postretirement benefit obligation                             599            684           785
Amortization of unrecognized net actuarial    gain
                                                              (282)          (154)         (157)
-------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost                      $ 350          $ 574         $ 665
=================================================================================================
</TABLE>


The assumed  weighted  average discount rate used in determining the accumulated
postretirement benefit obligation (APBO) was 7.4%, 8.0%, and 7.6% in 1997, 1996,
and 1995, respectively. The assumed health care inflation rate used in measuring
the APBO was 8% 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, 1997,  would be increased by  approximately  $508,000.  The cost
effect  of  this  change  on the  sum of the  service  cost  and  interest  cost
components  of net  periodic  postretirement  benefit  cost for 1997 would be an
increase of approximately $36,000.

Note 9  Business and Publishing Property Acquisitions

On April 29,  1997,  the Company  acquired the  copyrights  and interest in four
medical newsletters for cash of $700,000 and $271,000 in assumed liabilities, to
be amortized using the straight-line  method over 10 years. The newsletters were
acquired from Global  Success  Corporation,  Inc. and will serve to add value to
the  Company's   specialty   publishing  areas  of  obstetrics  and  gynecology,
anesthesiology and surgery.

On January 31, 1997, the Company acquired inventory,  copyrights,  and interests
in all English language publications 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 for cash of $2.3 million.  Purchase price
is  allocated  as follows:  $1,390,000  to  publishing  agreements,  $530,000 to
goodwill and $380,000 to net assets.  Intangible  assets will be amortized using
the straight-line method over 15 years.

Note 10 Incentive Plans

The Company has an incentive  plan for virtually  all employees  under which the
amount  available  for  bonuses is based on  achievement  of profit  targets and
individual performance goals. Compensation earned under the Plan was $1,036,000,
$1,025,000, and $1,350,000 for 1997, 1996, and 1995, respectively.


                                        32
<PAGE>

The Company has two stock option plans at December 31, 1997:  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 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 487,124  options  available to
grant under the 1995 plan at December 31, 1997.  The options expire on the tenth
anniversary of the grant date.
<TABLE>
<CAPTION>

A summary of the status of the Company's  stock option plans as required by SFAS
123 is presented below:
                                     Year Ended                   Year Ended                 Year Ended
                                  December 31, 1997           December 31, 1996          December 31, 1995
                                  -----------------           -----------------          ------------------
                                             Weighted                    Weighted                     Weighted
                                              Average                     Average                     Average
                                             Exercise                    Exercise                     Exercise
                                 Shares        Price        Shares         Price        Shares         Price
                              -------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>           <C>          <C>              <C>
Options outstanding
  beginning of period              972,306       $ 11.35       917,506       $ 10.04      927,402          $  9.33
Options exercised                 (74,730)        $11.96      (54,102)       $  9.39    (121,844)          $  8.69
Options surrendered                      -             -       (6,998)       $ 16.90      (5,252)          $ 10.58
Options granted                    115,300       $ 21.49       115,900       $ 21.12      117,200          $ 14.25
-------------------------------------------------------------------------------------------------------------------
Options outstanding
end of period                    1,012,876        $12.46       972,306       $ 11.35      917,506          $ 10.04
===================================================================================================================
Options exercisable at
end of period                      745,996       $ 10.50       721,113       $ 10.00      678,156          $  9.88
===================================================================================================================
Weighted average fair
value of options
granted during the
period                                           $  2.85                     $  8.06                       $  5.99
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

The following table summarizes  information  about stock options  outstanding at
December 31, 1997:
                                                                             Weighted
                                                        Weighted             Average
                                                        Average             Remaining
     Range of Exercise Price           Shares        Exercise Price      Contractual Life
     -----------------------           ------        --------------      ----------------
          <S>                          <C>               <C>                <C>           
          $ 7.13 - 12.00               694,726           $ 9.44             3.0 years
           12.01 - 17.00               102,500            14.25             7.0 years
           17.01 - 21.50               215,650            21.32             8.5 years

</TABLE>



                                        33
<PAGE>

Information  regarding  stock  options  exercisable  at  December  31,  1997  is
summarized as follows:


                                                         Weighted
                                                         Average
     Range of Exercise Price           Shares          Exercise Price
     -----------------------           ------          --------------     
          $ 7.13 - 12.00               682,696            $ 9.44
           12.01 - 17.00               42,750             14.25
           17.01 - 21.50               20,550             21.13


If  compensation  expense had been recorded based on the fair value at the grant
dates for awards under the Plans consistent with the recognition method
proscribed by SFAS 123, the Company's net income and earnings per share would
have been  adjusted to the pro forma amounts presented below:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------
                                                                1997                 1996                1995
--------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                  <C>                 <C>  
Net Income
    As reported                                              $ 7,096              $ 6,347             $ 5,305
    Pro forma                                                $ 6,873              $ 5,768             $ 4,868
Earnings per common share - Basic
    As reported                                              $  0.79              $  0.71             $  0.60
    Pro forma                                                $  0.77              $  0.65             $  0.55
Earnings per common share - Diluted
    As reported                                              $  0.75              $  0.68             $  0.57
    Pro forma                                                $  0.73              $  0.62             $  0.53
==============================================================================================================
</TABLE>


The fair value of each option was 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, 1997, 1996 and 1995:  dividend
yield of 1.2%,  expected  volatility of 29%,  risk-free interest rate of 5.5% in
1997,  5.9% in 1996 and 6.5% in 1995,  and  expected  term of 1 year for options
granted in 1997 and 7 years for 1996 and 1995. Pro forma net income was recorded
net of a deferred  income tax benefit of $137,000 in 1997,  $355,000 in 1996 and
$268,000 in 1995.

Note 11  Related Party Transactions

The Company made payments of $50,000,  $60,000,  and $90,000 in 1997,  1996, and
1995, respectively, to David J. Callard, a member of the Board of Directors, for
financial advisory services related to acquisitions and development.

The Company also paid John F. Spahr, Jr., a former officer and current member of
the Company's  Board of Directors,  for consulting  services.  The payments were
$50,000 in 1997,  $50,000 in 1996 and  $110,000 in 1995.  Mr. Spahr will receive
$50,000 per year through the year 2000 per agreement dated March 18, 1994.



                                        34
<PAGE>

On January 30, 1998, the Company loaned William M. Passano, Jr., chairman of the
Board of Directors,  $204,750  in order for him to exercise  options to 
purchase  26,000 shares of the Company's  stock under the Company's  Employee 
Stock Option Plan. The  Company  is holding  the  Shares as  collateral  and Mr.
Passano  will pay interest on the Loan at an annual rate equal to the actual
bank  borrowing  rate charged to the Company during the period the Loan is 
outstanding.

Note 12  Commitments and Contingencies

The Company leases office facilities and equipment under noncancelable operating
leases.  Related rent expense was  $2,235,000,  $2,260,000,  and  $1,731,000 for
1997, 1996, and 1995,  respectively.  Future minimum rental lease payments under
these  lease  agreements  aggregate  $2,485,000  in  1998,  $2,114,000  in 1999,
$2,178,000 in 2000,  $1,713,000  in 2001,  $1,665,000  in 2002,  and  $3,563,000
thereafter.

The  Company  has entered  into an  agreement  to sublet a portion of its leased
office property through 2000. Rental income was $237,000 in 1997. Future minimum
rental  income  under  this  sublease  agreement  aggregates  $237,000  in 1998,
$237,000 in 1999, and $39,000 in 2000.

Note 13  Revenues by Geographic Areas
<TABLE>
<CAPTION>

Revenues by geographic area for the years ended December 31 are presented below:

-----------------------------------------------------------------------------------------------------
(in thousands)                                                    1997           1996           1995
-----------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>     
United States                                                 $106,310       $ 98,282       $ 88,818
Europe                                                          48,618         55,788         54,176
Asia                                                             9,109          9,272          6,695
North America
 (excluding U.S.)                                                3,676          3,988          3,167
Australia                                                        1,792          1,617          1,394
South America                                                    2,425          1,824          1,684
Africa                                                             456            190            395
-----------------------------------------------------------------------------------------------------
Total                                                         $172,386       $170,961       $156,329
=====================================================================================================
</TABLE>


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 1997, 1996, and 1995 include German-based  revenues of $34,000,000,
$39,000,000, and $40,000,000,  respectively; income from operations of $897,000,
$2,823,000,   and  $2,626,000,   respectively;   and   identifiable   assets  of
$27,300,000, $29,800,000, and $32,700,000, respectively.



                                        35
<PAGE>

Note 14  Financial Information by Quarter (Unaudited)
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
(in thousands of dollars except per share data)                           1997               1996
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>    
Revenues
   First quarter                                                      $ 39,213           $ 37,917
   Second quarter                                                       46,482             43,349
   Third quarter                                                        38,430             39,589
   Fourth quarter                                                       48,261             50,106
--------------------------------------------------------------------------------------------------
Full Year                                                             $172,386           $170,961
--------------------------------------------------------------------------------------------------
Operating Income
   First quarter                                                   $       689         $      459
   Second quarter                                                        4,499              2,864
   Third quarter                                                         1,345              1,415
   Fourth quarter                                                        5,009              4,704
--------------------------------------------------------------------------------------------------
Full Year                                                            $  11,542           $  9,442
--------------------------------------------------------------------------------------------------
Net Income
   First quarter                                                   $       684          $     539
   Second quarter                                                        2,473              1,881
   Third quarter                                                           671              1,155
   Fourth quarter                                                        3,268              2,772
--------------------------------------------------------------------------------------------------
Full Year                                                            $   7,096           $  6,347
--------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share
   First quarter                                                    $     0.07         $     0.06
   Second quarter                                                         0.28               0.21
   Third quarter                                                          0.08               0.13
   Fourth quarter                                                         0.36               0.31
--------------------------------------------------------------------------------------------------
Full Year                                                           $     0.79          $    0.71
--------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share
   First quarter                                                    $     0.07          $    0.06
   Second quarter                                                         0.27               0.20
   Third quarter                                                          0.07               0.12
   Fourth quarter                                                         0.34               0.30
--------------------------------------------------------------------------------------------------
Full Year                                                            $    0.75          $    0.68
--------------------------------------------------------------------------------------------------
</TABLE>




                                        36
<PAGE>

Note 15  Recent Accounting Pronouncements

Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income"  (SFAS 130) and  Statement of Financial  Accounting  Standards  No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS 131)
were issued in June 1997. The disclosures  required by these  statements must be
reported  by the  Company  in 1998.  The  Company  is  reviewing  the  financial
statement  impact of SFAS 130 and SFAS 131 and will adopt  them by the  required
dates.

Note 16  Subsequent Events

The Company  entered into an agreement (the "Merger  Agreement") on February 11,
1998 to be acquired by  Amsterdam-based  Wolters Kluwer NV for $375 million,  or
$39 per  share.  Under the  agreement,  a  Wolters  Kluwer  subsidiary  promptly
commenced a tender offer for all the outstanding  shares of the Company's common
stock  at $39 per  share,  net to the  seller  in  cash.  The  tender  offer  is
conditional  on Wolters Kluwer  receiving  tenders of at least two thirds of the
Company's outstanding common stock (on a fully diluted basis) and the expiration
of any  waiting  periods  under the  anitrust  laws of the  United  States or of
applicable jurisdictions outside of the United States. Stockholders representing
a majority of the outstanding  shares of the Company,  including  members of the
founding  Passano family,  have entered into a definitive  agreement (the "Stock
Option Agreement") to tender their shares into the tender offer and vote for the
merger for $39 per share, and certain of such  stockholders have granted Wolters
Kluwer  a  proxy  to  vote  their  shares  under  certain  circumstances.  These
shareholders  have also granted  Wolters Kluwer under certain  circumstances  an
option to purchase their shares.

For a more  complete  description  of the Merger  Agreement and the Stock Option
Agreement, see Item 1 of this Annual Report on Form 10-K.


The Company  entered into an agreement on January 21, 1998 to acquire the assets
associated with LifeART Collections from TechPool Studios,  Inc. for $550,000 in
cash.  The  LifeART  product  line  currently   contains  27  collections  of  2
dimensional  and 3  dimensional  color art and  graphics  specific to  medicine,
dentistry, EMS, nursing, and healthcare.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

Not applicable.



                                        37
<PAGE>

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant.
<TABLE>
<CAPTION>

The following table sets forth certain  information  with respect to the current
directors of the Company as of February 14, 1998:

                                                                                                                    Director
              Name and Age                Other Positions with the Company and Principal Occupations                  Since
-----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                                                                          <C> 
David J. Callard (59)                     President, Wand Partners, Inc.,                                              1974
                                          private investment firm, New York, NY

Edward B. Hutton, Jr. (52)                President and Chief Executive Officer                                        1988

Michael E. Johns (56)                     Executive Vice President for Health Affairs;                                 1993
                                          Director, Robert W. Woodruff Health Sciences Center
                                          Emory University, Atlanta, GA

John F. Spahr, Jr. (47)                   Managing Director, Teton Data Systems,                                       1991
                                          Jackson, WY

Michael Urban (58)                        President and Chief Executive Officer, Urban         &                       1990
                                          Schwarzenberg Verlag fur Medizin GmbH, a subsidiary of
                                          the Company

Barbara J. Bonnell (66)                   Director of Research and Information, Baltimore                              1974
                                          Development Corporation, Baltimore, MD

Donald W. Dick, Jr. (55)                  Principal, EuroCapital Advisors, LLC,  private                               1980
                                          investment firm, Weehawken, NJ

Carolyn Manuszak (59)                     President, Villa Julie College, Stevenson, MD                                1987

E. Magruder Passano, Jr. (55)             Vice Chairman of the Board, Secretary                                        1972

Richard C. Riggs, Jr. (58)                President and CEO, Barton-Cotton, Inc., Baltimore, MD                        1995

Samuel G. Macfarlane (66)                 Consultant and former Vice President and Chief                               1966
                                          Financial Officer and Treasurer of Waverly, Inc.

Ackneil M. Muldrow, II (60)               President and CEO, Development Credit Fund, Inc.,                            1992
                                          Baltimore, MD

Joseph M. Palazzolo (48)                  Chairman, Gateway Investments, Inc.,                                         1996
                                          Muttontown, NY

William M. Passano, Jr. (69)              Chairman of the Board                                                        1965

<FN>
Mr. Samuel G. Macfarlane is the brother-in-law of Mr. William M. Passano, Jr.,
Mr. E. Magruder Passano, Jr. is the son of Mr. Edward M. Passano, Sr. and a 
first cousin of Mr. William M. Passano, Jr.
</FN>
</TABLE>
                                        
                                        38

<PAGE>


Pursuant  to the Merger  Agreement  described  in Item 1 and  promptly  upon the
purchase of and payment for Shares by Wolters  Kluwer  which  represent at least
two thirds of the outstanding Shares (on a fully diluted basis),  Wolters Kluwer
will be entitled to designate  such number of  directors,  subject to compliance
with  Section  14(f) of the  Securities  Exchange  Act of 1934,  as amended (the
"Exchange Act") and Rule 14f-1  promulgated  thereunder,  rounded up to the next
whole number,  on the Board of Directors of the Company (the "Company Board") as
is equal to the product of the total number of  directors  on the Company  Board
multiplied by the percentage  that the aggregate  number of Shares  beneficially
owned by Newco,  Wolters Kluwer and any of their  affiliates  bears to the total
number of Shares  then  outstanding.  The  Company has agreed to take all action
necessary to cause Wolters Kluwer's designees (the "Designees") to be elected or
appointed to the Company Board and to secure the  resignations of such number of
its incumbent directors as is necessary to enable the Designees to be elected to
the Company Board. The Merger  Agreement  further provides that the Company will
cause the  Designees  to  constitute  the same  percentage  as such  individuals
represent on the Company  Board of each  committee of the Company Board and each
board of directors  (and committee  thereof) of each  subsidiary of the Company.
Prior to the effective time of the Merger, the Company will retain as members of
the Company Board at least two (2)  directors  that are directors of the Company
on the date of the Merger Agreement;  provided,  that subsequent to the purchase
of and payment for Shares pursuant to the Offer, the Designees will represent at
least a majority of the entire  Company  Board,  subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder.

<TABLE>
<CAPTION>
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
--------------------------------------------------------------------------------------
<S>                                        <C>     <C>  
William M. Passano, Jr.                    69      Chairman of the Board since 1988.
                                                   Chief Executive  Officer from
                                                   1971 to 1991.  Director since
                                                   1965. Employed by the Company
                                                   since 1955.


E. Magruder Passano, Jr.                   55      Vice Chairman, Secretary since
                                                   April, 1990. Vice President,
                                                   Administration and Corporate
                                                   Secretary from 1971 to 1990.
                                                   Director since 1972.  Employed by
                                                   the Company since 1965.

Edward B. Hutton, Jr.                      52      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                              58      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.



                                          39 
<PAGE>

                                                    Position and Business Experience
                Name                      Age         During Past Five Years or More
------------------------------------------------------------------------------------

Arthur E. Newman                           49      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.

Frederick Fusting                          47      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                           52      President, Waverly International
                                                   since January 1998.  President, W &
                                                   W Marketing Division 1993 to 1997.
                                                   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                              50      President, Periodical Publishing
                                                   since 1986. Vice President, Journal
                                                   Development   from   1984  to
                                                   1986. Employed by the Company
                                                   since 1976.

Stephan Joss                               41      Chief Operating Officer of Urban &
                                                   Schwarzenberg since 1997.
                                                   Executive Vice President since
                                                   1992.

E. Philip Hanlon                           49      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                            34      Treasurer, since February 1997.
                                                   Assistant Treasurer from 1995 to
                                                   1997.  Employed by the Company
                                                   since 1989.
</TABLE>

Item 11.  Executive Compensation.

The following Summary  Compensation  Table sets forth for the fiscal years ended
December  31,  1997,  1996 and 1995  information  as to the  total  compensation
received  by each of the  Chief  Executive  Officer  and the four  highest  paid
executive  officers who received total compensation in excess of $100,000 in all
capacities.


                                        40
<PAGE>
<TABLE>
<CAPTION>

                                            SUMMARY COMPENSATION TABLE

                                                                                     
                                                                                     Long-Term     
                                                     Annual Compensation(1)         Compensation       All Other
Name and                                        -------------------------------         Awards          Compen-    
Principal Position                    Year      Salary($)(2)        Bonus($)(3)        Options (#)      sation($)(4)
--------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>                 <C>                              <C>  
William M. Passano, Jr.               1997           340,000             35,200                   -       6,734
  Chairman of the Board               1996           325,000             56,875                   -       9,260
                                      1995           300,000             71,800                   -       8,610

Edward B. Hutton, Jr.                 1997           375,000             38,800              20,000      28,813
  President and CEO                   1996           350,000             61,250              17,000      10,693
                                      1995           335,000             80,200              15,000      12,952

Michael Urban
  President and CEO,                  1997           270,900                  -                   -           -
  Urban & Schwarzenberg               1996           302,000             67,000                   -           -
  Verlag fur Medizin                  1995           313,000             52,500                   -         540
   GmbH (5)

Arthur E. Newman                      1997           215,000             22,200              10,000       2,993
  Executive Vice President            1996           205,000             35,875               9,000       2,960
                                      1995           194,000             46,500               9,000       2,811

Alma J. Wills                         1997           150,000             29,500               7,000       2,783
  President, Periodical               1996           135,000             45,900               6,000       1,836
  Publishing                          1995           130,000             20,300               6,000       2,018

<FN>

(1) Does not include perquisites and other personal benefits where the aggregate
value of such  compensation to the executive  officer is less than 10% of annual
salary and bonus.

(2) Includes salary deferrals under the WISP.

(3) Comprises  bonuses under the WIN Plan,  which were accrued during the fiscal
year indicated but were paid in the following fiscal year.

(4) Includes life  insurance  premiums paid by the Company and Company  matching
contributions  under  the  WISP.  Under the WISP,  the  Company  makes  matching
contributions of 25% of each participant's  contribution subject to a maximum of
1.5% of an  employee's  compensation  up to $9,240.  The amounts for 1997 are as
follows:



                                        41
<PAGE>

                                    WISP             Insurance
                                    ----             --------- 
Passano, W.                        $2,375              $ 634
Hutton                              2,375              6,743
Urban                                 -                  -
Newman                              2,375               618
Wills                               2,375               408



(5) Dr.  Urban's  compensation  has been  converted  into dollars based upon the
currency  exchange rate of .5562 DM per dollar as of December 31, 1997, .6494 DM
per dollar in effect on  December  31,  1996,  and .6961 DM per dollar in effect
December 29, 1995.
</FN>
</TABLE>

                        Option Grants in Last Fiscal Year
                        ---------------------------------

The following table sets forth information  concerning the grant and exercise of
options in the last fiscal year under the  Waverly,  Inc.  1997  Employee  Stock
Option Plan to the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>

 __________________INDIVIDUAL GRANTS_____________
|                                                |
                                                                                        Potential Realizable
                                                                                         Value at Assumed
                        Number        % of Total                                          Annual Rates of
                    of Securities      Options                                             Stock Price
                      Underlying      Granted to                                         Appreciation for
                       Options       Employees in    Exercise                             Option Term(2)
                      Granted(1)     Fiscal year       Price       Expiration
       Name                                           ($/Sh)          Date        0%        5%           10%
------------------- --------------- --------------- ------------ --------------- ----- ------------- -------------
<S>                         <C>            <C>           <C>           <C>         <C>     <C>       
Passano,W.                       0            0.0%       $ 0.00             N/A    $0      $      0      $      0
                                                                                                               
Hutton                      20,000          17.75%       $21.50         2/14/07    $0      $270,425      $685,309

Urban                            0            0.0%       $ 0.00             N/A    $0      $      0      $      0             

Newman                      10,000           8.87%       $21.50         2/14/07    $0      $135,212      $342,655

Wills                        7,000           6.21%       $21.50         2/14/07    $0      $ 94,649      $239,858

<FN>

(1) All options  were  granted  with an exercise  price equal to the fair market
value of the  Common  Stock  underlying  the  option on the date of  grant.  The
options  are  exercisable  to the  extent of 25% of the shares one year from the
grant date, an additional  25% two years from the grant date, an additional 25 %
three  years from the grant  date,  and in full four years from the grant  date,
subject to such  limitations  as are imposed by Section  162(m) of the  Internal
Revenue

                                        42
<PAGE>

Code  on  qualified  options,  unless  accelerated  upon a  change  in  control,
retirement,  death or disability. These options have a term of ten years, unless
terminated   sooner  in  connection  with  death,   disability,   retirement  or
termination.

(2)  Amounts  are  based  on the  0%,  5% and 10%  annual  compounded  rates  of
appreciation  of the  Common  Stock  price,  prescribed  by the  Securities  and
Exchange Commission, and are not intended to forecast future appreciation of the
Company's  Common Stock.  The prices of the Common  Stock,  assuming such annual
compounded  rates  of  appreciation,   would  be  $21.50,   %35.02  and  $55.77,
rspectively.
</FN>
</TABLE>

    Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
    ------------------------------------------------------------------------
The  following  table  provides  information  with respect to the stock  options
exercised  during  fiscal  year  ended  December  31,  1997 and the  value as of
December  31,  1997  of  unexercised  in-the-money  options  held  by the  named
executive officers.  The value realized on the exercise of options is calculated
using the difference  between the per share option exercise price and the market
value  of a  share  on the  date  of the  exercise.  The  value  of  unexercised
in-the-money  options  at fiscal  year end is  calculated  using the  difference
between the per share option  exercise  price and the market value of $47.00 per
share at fiscal year end, December 31, 1997.
<TABLE>
<CAPTION>

                                                         Number of Securities                Value of Unexerc.
                                                         Underlying Unexerc.                   In-the-Money
                         Shares                          Options At FY-End                 Options At FY-End
                      Acquired on       Value         ----------------------------     ----------------------------- 
                      Exercise(3)    Realized ($)                                       
       Name                                           Exercisable    Unexercisable     Exercisable     Unexercisable
--------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>             <C>                   <C>     <C>             <C>       
Passano, W.                   4,400       $34,650         111,000               0       $4,172,250      $        0

Hutton                            0             0         217,970          64,030        8,103,368       1,895,258

Urban                             0             0           2,500               0           94,375               0

Newman                            0             0          56,750          21,250        2,071,469         322,031

Wills                             0             0          45,600          14,500        1,678,350         393,188

</TABLE>




                                        43
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The  following  table  lists  only  persons  known to the  Company to be holding
beneficially  5% or more of the  Company's  outstanding  Common Stock or to have
filed a Schedule 13D or 13G as of February 14, 1998:
<TABLE>
<CAPTION>

                        PRINCIPAL HOLDERS OF COMMON STOCK
                        --------------------------------- 
                                                                                   Number                           Percent of Total
Name and Address                                                                of Shares(1)                          Outstanding
------------------------------------------------------------------- ------------------------------------- --------------------------

<S>                                                                               <C>                                     <C>  
Life Estate under the Will of Edward B. Passano(2)(3)                             3,227,822                               35.7%

Michael Urban(3)(4)                                                                 802,500                                8.9%

John F. Spahr, Jr., Robert N. Spahr, Christian C. Febiger
Spahr, Jr. Revocable Trust, K. Spahr Vanderbilt, N. Spahr
Bush, M. Spahr Clement, V. Spahr Heth(5)                                            495,000                                5.5%

All members of the Passano family and their associates,
including the above(6)                                                            5,249,149                               57.3%

GeoCapital Corporation(7)
767 Fifth Avenue
New York, NY 10153                                                                  706,600                                7.8%

Theodore L. Cross and certain persons(8)
200 W. 57th Street - 15th Floor
New York, NY 10019                                                                  499,912                                5.5%

<FN>

(1) Includes shares issuable to the designated individuals under options exercisable within 60              days
    after the record date.

(2) This is a Life Estate under the Will of Edward B. Passano presently held for
    the benefit of his son,  Edward M.  Passano,  Sr. The shares held in the Passano
    Life Estate are subject to a voting trust agreement described below.

(3) The address of such person is 351 W. Camden Street, Baltimore, Maryland 21201.

(4) Includes  800,000 shares held by a corporation and which Dr. Urban is deemed
    to own  beneficially,  which are subject to a voting trust  agreement  described
    below.

(5) The address of the Mr. Robert Spahr, Mr. John F. Spahr, Jr., Mr. Spahr and Ms. Thomas, Trustees
    under the will of John F. Spahr, Sr. for Dorothy Spahr and the Christian C. Febiger
    Spahr, Jr. Revocable Trust is 351 W. Camden Street, Baltimore, MD 21201.  These include 495,000
    shares held collectively subject to a ten-year escrow agreement and subject to four separate voting
    trust agreements (see "Spahr Voting Trusts"). Robert F. Spahr has dispositive

                                        44
<PAGE>

    power as to 155,000 shares. John F. Spahr, Jr. has dispositive power as to 155,000 shares. John
    F. Spahr, Jr. and Regina O. Thomas, Trustees under the will of John F. Spahr, Sr. for Dorothy Spahr,
    have dispositive power as to 85,000 shares owned by Trustees under the will of John F. Spahr, Sr., Ann
    Spahr Tyler and Jay C. Rippard, Trustees, have dispositive power as to 100,000 shares owned by the
    Christian C. Febiger Spahr, Jr. Revocable Trust.

(6) Includes 116,500 shares issuable under options exercisable within 60 days of
    the record date.

(7) GeoCapital  Corporation is an investment company.  Information obtained from
    GeoCapital  contained in a Schedule 13G filed with the  Securities  and Exchange
    Commission on February 23, 1998,  states that  GeoCapital  has sole  dispositive
    power as to 706,600 shares.  (8) Theodore Cross' principal  occupation is editor
    and publisher of various academic journals.  Information obtained from Mr. Cross
    as of December 8, 1994, contained in a statement on Schedule 13D states that Mr.
    Cross has sole  power to vote or to direct the vote and sole power to dispose or
    direct the disposition of 357,574 shares owned by Theodore  Cross.  Mr. Cross is
    deemed  to have  sole  power to vote or to  direct  the  vote and sole  power to
    dispose or direct the  disposition of 6,500 shares owned by Management  Reports,
    Inc. by virtue of his  ownership of 60% of the issued and  outstanding  stock of
    Management  Reports,  Inc. James A. Hellmuth,  as sole trustee of the Louisville
    Charitable  Remainder  Unit Trust,  has sole power to vote or to direct the vote
    and sole power to dispose or direct the disposition of 5,000 shares owned by the
    Louisville  Trust.  Mary  Cross,  Amanda B.  Cross,  Lisa W.  Pownall-Gray,  Ann
    Fairchild  Warner,  Polly  Mackwell  and Stuart G. Warner each has sole power to
    vote or to direct the vote and sole  power to dispose or direct the  disposition
    of their respective shares.
</FN>
</TABLE>

Passano  Voting  Trust.  The stock  subject to the  Passano  Family  Life Estate
referred  to in note (2) above is voted by Edward M.  Passano,  Sr.,  William M.
Passano,  Jr. and Susan P. Macfarlane,  all of 351 W. Camden Street,  Baltimore,
Maryland  21201, as voting trustees under a voting trust agreement (the "Passano
Voting Trust") dated July 31, 1989,  which will expire on the earliest to happen
of (1) the execution of a subsequent voting trust agreement by the parties;  (2)
the  lapse of ten  years  from  July 31,  1989;  or (3) the  death of  Edward M.
Passano,  Sr. The  latter is  entitled  to a 50% vote with  respect to the stock
subject to the voting trust and the other trustees are entitled to the remaining
50% vote, so that,  unless the trustees are in  agreement,  it could happen that
the stock  subject to the  voting  trust  could be not voted at all.  William M.
Passano,  Jr.,  Susan P.  Macfarlane  and E.  Magruder  Passano,  Jr., the three
grandchildren  of the  original  testator,  have  agreed  that upon the death of
Edward M. Passano,  Sr., they will enter into a ten-year  voting trust agreement
(together with the Passano Voting Trust,  the "Passano Voting Trusts")  pursuant
to which the  stock  they will then  receive  from the  termination  of the Life
Estate under Edward B.  Passano's  Will will be voted as a unit for that period.
The voting trustees will be those three  grandchildren of the original  testator
or their respective spouses.



                                        45
<PAGE>

Urban Voting Trust. The shares  referenced in note (4) above remain subject to a
voting trust (the "Urban Voting Trust") of which Mr. William M. Passano, Jr. and
Dr.  Urban are the  cotrustees.  The  address of the  trustees  is 351 W. Camden
Street, Baltimore,  Maryland 21201. The duration of the Urban Voting Trust shall
be coterminous with that of the Passano Voting Trust described above. The shares
must be voted in the same way as the shares  subject to the Passano Voting Trust
described  above unless the Passano  family shares are  deadlocked and cannot be
voted at all,  in which  case Dr.  Urban  will  have the sole  right to vote the
800,000 shares.

Spahr Voting Trusts. The 495,000 shares owned collectively by Mr. Robert Spahr,
Mr. John F. Spahr, Jr., Trustees under the will of John F. Spahr, Sr. and the
Christian C. Febiger Spahr, Jr. Revocable Trust referred to in note (5) above
have been placed in voting trusts (the"Spahr Voting Trusts").  The Spahr Voting
Trusts shall expire January 9, 2001.  The shares in each of the Spahr Voting 
Trusts must be voted in the same way as the shares subject to the Passano Voting
Trust described above, unless the Passano family shares are deadlocked and 
cannot be voted at all. In the event of a deadlock, Mr. Robert Spahr and
Mr. John F. Spahr, Jr. will have the sole right to vote their respective 155,000
shares. Mr. Passano will have the sole right to vote the 100,000 shares owned by
the Christian C. Febiger Spahr, Jr. Revocable Trust, and the 85,000 shares owned
by the Trustees under the will of John F. Spahr, Sr. for Dorothy Spahr.  The 
495,000 shares held collectively by Mr. Robert Spahr, Mr. John F. Spahr, Jr.,
the Trustees under the will of John F. Spahr, Sr. and the Christian C. Febiger
Spahr, Jr. Revocable Trust are subject to an escrow agreement until 
January 10, 2001 to secure indemnification obligations in the  agreement
relating to the acquisition of  Lea &  Febiger. Under the terms of the escrow
agreement, each of the Messrs. Spahr and the Christian C. Febiger Spahr, Jr.
Revocable Trust may obtain the release of up to 70,000 (adjusted for 
2-for 1- stock split on June 12, 1996) shares in the event of death, disability
or divorce.

As a result of these arrangements, the Dr. Urban, Messrs. Spahr, Trustees under
the will of John F. Spahr, Sr. and the Christian C. Febiger Spahr, Jr. Revocable
Trust may be deemed to be "associates" of the Passano family, as that term is
defined in the rules and regulations of the Securities and Exchange Commission.


                                        46
<PAGE>

The following table sets forth information regarding the beneficial ownership by
named  executive  officers,  directors,  nominee for director and all  executive
officers,  directors  and nominee for  director,  as a group,  of the  Company's
outstanding Common Stock on February 14, 1998:
<TABLE>
<CAPTION>

                        SECURITY OWNERSHIP OF MANAGEMENT
                        -------------------------------- 
                                                                            
                                                                            Shares Beneficially             Percent of Total
Name                                                                           Owned(1)(2)(3)                  Outstanding
----                                                                        -------------------             ---------------- 
<S>                                                                               <C>                            <C> 
William M. Passano, Jr., Chairman, Director                                       283,990(3)                     3.1%
E. Magruder Passano, Jr., Vice Chairman, Director                                 253,765                        2.8%
Edward B. Hutton, Jr., President and CEO, Director                                232,777                        2.5%
Arthur E. Newman, Executive Vice President                                         62,493                           *
Michael Urban, President and CEO, Urban &
  Schwarzenberg Verlag fur Medizin GmbH, Director                                 802,500(4)                     8.9%
Alma J. Wills, President, Periodical Publishing                                    52,540                           *
Barbara J. Bonnell, Director                                                        6,454                           *
David J. Callard, Director                                                         71,448                           *
Donald W. Dick, Jr., Director                                                       4,978                           *
Michael E. Johns, Director                                                          1,588                           *
Samuel G. Macfarlane, Director                                                      9,120                           *
Carolyn Manuszak, Director                                                          1,827                           *
Ackneil M. Muldrow, II, Director                                                    1,883                           *
Joseph M. Palazzolo, Director                                                     118,584                        1.3%
Richard C. Riggs, Jr., Director                                                     1,050                           *
John F. Spahr, Jr., Director                                                      155,000                        1.7%
All  executive  officers,  directors  and  nominees  for director as a group (27
persons),  including  the Life  Estate  under  the  Will of  Edward  B.  Passano
(3,227,822  shares)  and all shares  held in the Spahr  Voting  Trusts  (495,000
shares) and the Urban Voting Trust (800,000)                                    5,743,916                       59.8%

<FN>

(1) Includes shares owned by trusts, spouses and minor children of the indicated
persons.

(2)  Includes the  following  numbers of shares  subject to options  exercisable
     within 60 days after the record date: William M. Passano, Jr., 85,000 shares; E.
     Magruder  Passano,  Jr., 29,000 shares;  Edward B. Hutton,  Jr., 230,110 shares;
     Arthur E. Newman, 61,478 shares; Alma J. Wills, 45,250 shares; David J. Callard,
     12,500  shares;  and all other  executive  officers,  directors  and nominee for
     director as a group (27 persons), 571,363 shares.

(3)  Excludes  3,227,822  shares held in Life Estate under the Will of Edward B.
     Passano,  the  800,000  shares  held in the Urban  Voting  Trust and the 495,000
     shares held in the Spahr  Voting  Trusts with  respect to which Mr.  Passano has
     shared  voting power by virtue of his status as a trustee of the various  voting
     trusts.  For a description  of the voting trust  arrangements  relating to these
     shares, see the description under "Principal Holders of Common Stock."


                                        47
<PAGE>

(4) For a description of the voting trust arrangements relating to these shares,
    see the description under "Principal Holders of Common Stock."
</FN>
</TABLE>

Item 13. Certain Relationships and Related Transactions.

The  Company  and  Mr.  David  J.  Callard  have  an  agreement  (the  "Retainer
Agreement")  dated  December 30, 1996,  pursuant to which Mr.  Callard  provides
financial advisory services in the area of acquisition and development  ("A&D").
Under the Retainer  Agreement,  Mr. Callard in fiscal 1995 was granted an option
to purchase 5,000 Shares at an exercise price of $14.25 per Share, which was the
fair market value on the day of the grant. The option becomes exercisable in 25%
increments on the anniversary  date of the day of the grant.  Beginning in April
1996,  the  Company  agreed to pay Mr.  Callard an annual  retainer  of $50,000.
Pursuant  to the  Retainer  Agreement,  Mr.  Callard  has  waived  his  right to
director's fees and future  participation in the Company's  Director Stock Plan.
On December 12, 1997, the Company  renewed the Retainer  Agreement for 1998 (the
"Renewal").  Under the terms of the  Renewal,  payments  made under the Retainer
Agreement  shall be deducted from the $400,000  contingent fee payable under the
terms of the Callard  Engagement Letter (as defined below).  The Company and Mr.
Callard have agreed that the Retainer  Agreement will be terminated and canceled
at the effective time of the Merger with Wolters Kluwer.

Pursuant to a letter  agreement dated November 4, 1997 (the "Callard  Engagement
Letter")  between the Company and Mr. Callard,  Mr. Callard agreed to advise and
assist the Company in connection  with the potential sale of the Company.  Under
the terms of the Callard  Engagement  Letter,  the Company has agreed to pay Mr.
Callard a  contingent  fee of  $400,000  if (a)  control of more than 55% of the
Company's  common stock  changes  hands or (b) the Company  sells a  substantial
amount of its assets.  The Company has further  agreed to indemnify Mr.  Callard
for  certain  costs,  expenses  and  liabilities  related  to  his  services  in
connection with the Callard Engagement Letter.

Waverly has  entered  into an  agreement  with Mr.  John F.  Spahr,  Jr.,  which
replaces  his prior  employment  agreement,  pursuant  to which Mr.  Spahr  will
provide  consulting  services to the Company.  Under this  agreement,  Mr. Spahr
received  $110,000  for 1995 and is entitled to receive  $50,000 for each of the
years 1996 through 2000. In connection with the agreement,  Mr. Spahr has waived
his right to director's fees and future  participation in the Company's Director
Stock Plan.

The  Company's  subsidiary,  Urban &  Schwarzenberg  Verlag fur Medizin  GmbH is
indebted to Gisela Urban,  Dr.  Urban's  mother,  for 150,000 DM  (approximately
$84,000)  bearing  interest  at 5% per annum  payable  on  demand on one  year's
notice.  Loan amounts have been  converted  into dollars based upon the currency
exchange rate of .5562 DM per dollar in effect on December 31, 1997.

On January 30, 1998, William M. Passano, Jr. exercised options to purchase
26,000 shares granted under the Company's Incentive Plan at an exercise price of
$7.875 per share and the Company loaned him the amount of the exercise price for
the 26,000 Shares, $204,750.00 (the "Loan").  The Company is holding the Shares
as collateral and William M. Passano, Jr. will pay interest on the Loan at an
annual rate equal to the actual bank borrowing rate charged to the Company 
during the period the Loan is outstanding.  The Loan and accrued interest is due

                                        48
<PAGE>

no later than the time that the Shares are sold, and is callable by the Company
at such time as William M. Passano, Jr. is freely able to dispose of the shares.

<TABLE>
<CAPTION>

                                     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
         ----------------------------------------------------------------------------------------------------

  <S>    <C>                                                                                             <C>                        
  (1)    Financial Statements:
         Report of Independent Accountants                                                               13

         Consolidated Balance Sheets at December 31, 1997 and 1996                                       14

         Consolidated Statements of Operations for the three years ended December                        16
           31, 1997

         Consolidated Statements of Shareholders' Equity for the three years ended                       17
           December 31, 1997

         Consolidated Statements of Cash Flows for the three years ended December                        19
          31, 1997

         Notes to Consolidated Financial Statements                                                      21

  (2)    Financial Statement Schedules:
         Report of Independent Accountants on Financial Statement Schedule                               50

         Schedule I - Valuation and Qualifying Accounts and Reserves                                     51

         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 53.



(b)      Reports on Form 8-K

         The  Registrant was not required to file any report on Form 8-K for the
         fourth quarter of 1997.
</TABLE>


                                        49
<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and
  Shareholders of Waverly, Inc.


Our  report on the  consolidated  financial  statements  of  Waverly,  Inc.  and
subsidiaries  is included on page 13 of this Form 10-K. In  connection  with our
audits of such financial statements,  we have also audited the related financial
statement schedule listed in the index on page 49 of this Form 10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.



                                                    /s/Coopers & Lybrand L.L.P. 
                                                    ---------------------------
                                                    COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 30, 1998, except for
     Note 16, as to which the
     date is February 11,1998



                                        50
<PAGE>

                                                    Schedule I
<TABLE>
<CAPTION>

                                  Valuation and Qualifying Accounts and Reserves
                                  ----------------------------------------------
                                                                           
                                                                           
                                                                               Deductions:
                                          Balance at       Additions:       Amounts Charged off        Balance at
          Classification             Beginning of Year   Charged to Income    Less Recoveries         End of Year
-------------------------------------------------------------------------------------------------------------------

<S>                                               <C>                <C>                 <C>                <C>
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

Year ended December 31, 1997,
Allowance for doubtful accounts                   $1,493             $  753              $  808             $1,438

</TABLE>





                                        51
<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 26, 1998


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 26, 1998
                                        

                 By:             /s/E. Philip Hanlon
                                 -------------------
                                 E. Philip Hanlon
                                 Vice President and Chief Financial Officer

                                 Dated:  March 26, 1998

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 26, 1998
         -------------------
         E. Philip Hanlon
         as Attorney-in-Fact




                                        52
<PAGE>

                                  Waverly, Inc.

                              1997 Annual Form 10-K

                                  Exhibit Index
                                  -------------
                                    
(3)      Articles of Incorporation and By-Laws

         A.     Articles of Restatement, (incorporated by reference to Exhibit
                3A filed with 1989 Annual Report of Form 10-K)

         B.     Amended  By-Laws  of  the  Registrant   dated  March  30,  1989.
                (incorporated  by  reference  to  Exhibit 3B filed with the 1993
                Annual Report on Form 10-K)

(9)      Voting Trust Agreements

         A.      Agreement between Michael Urban and members of the Passano
                 Family Voting Trust. (incorporated by reference to Exhibit 9A,
                 filed with the 1992 Annual Report on Form 10-K)  and Amendment
                 No. 1.(incorporated by reference to Exhibit 9A, filed with the
                 1993 Annual Report on Form 10-K)

         B.      Agreement  between  various  members  of the Spahr  family  and
                 members of the Passano  Family Voting Trust.  (incorporated  by
                 reference to Exhibit 9B,  filed with the 1992 Annual  Report on
                 Form 10-K)

(10)     Material Contracts

         A.      Agreement and Plan of Merger, dated as of February 10, 1998, by
                 and among Wolters Kluwer,  Newco and the Company  (incorporated
                 by reference to Exhibit 1 of the Schedule  14D-9 filed with the
                 Commission by the Company on February 18, 1998).

         B.      (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) .

       * C.      Agreement  with  David J.  Callard  (the  "Renewal")  dated
                 December 12, 1997, Exhibit A ("the "Callard Engagement Letter")
                 dated November 4, 1997 and related agreement are filed herewith
                 as Exhibit 10C.

       * D.      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) .

       * E.      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) .

         F.      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) .
         G.      Director  Stock Plan adopted  April 27, 1992  (incorporated  by
                 reference  to Exhibit 10F filed with the 1992 Annual  Report on
                 Form 10-K) .


                                        53
<PAGE>

       * H.      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) .

         I.      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).

         J.      1995  Employee   Stock  Option  Plan  adopted  April  24,  1995
                 (incorporated  by  reference  to  Exhibit A filed with the 1995
                 Proxy Statement).
         K.      Loan  Agreement  to  Purchase  Stock  Options,   dated  January
                 19,1998,  between the Company  and William M.  Passano,  Jr. is
                 filed herewith as Exhibit 10K.

(21)     Subsidiaries of the Registrant, filed herewith.

(23)     Consent of Independent Accountants.
          
(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.
                    
                                        54