Page 1 of 22
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 1994
---------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14399
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WESTERN PUBLISHING GROUP, INC.
- - - ----------------------------------------------------------------------
Exact name of registrant as specified in its charter)
Delaware 06-1104930
- - - -------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
444 Madison Avenue, New York, New York 10022
- - - ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-4500
-------------------
N/A
- - - ----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 21,018,524 shares
outstanding as of September 2, 1994.
WESTERN PUBLISHING GROUP, INC. AND
----------------------------------
SUBSIDIARIES
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TABLE OF CONTENTS
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets--
July 30, 1994 (Unaudited) and January 29, 1994 4
Condensed Consolidated Statements of Operations--
Three months ended July 30, 1994
and July 31, 1993 (Unaudited) 6
Condensed Consolidated Statements of Operations--
Six months ended July 30, 1994
and July 31, 1993 (Unaudited) 7
Condensed Consolidated Statements of Cash Flows--
Six months ended July 30, 1994
and July 31, 1993 (Unaudited) 8
Notes to Condensed Consolidated Financial
Statements (Unaudited) 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBITS
Exhibit 10.86 - Amendment No. 1 to Amended and
Restated Credit Agreement dated as
of August 4, 1994 21
Exhibit 15 - Letter re: unaudited interim financial
information 22
[Letterhead of Deloitte & Touche LLP]
INDEPENDENT ACCOUNTANTS' REPORT
Western Publishing Group, Inc.
New York, New York
We have reviewed the accompanying condensed consolidated balance sheet of
Western Publishing Group, Inc. and subsidiaries as of July 30, 1994, and the
related condensed consolidated statements of operations and cash flows for the
three-month periods and six-month periods ended July 30, 1994 and July 31,
1993. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Western Publishing Group, Inc. and
subsidiaries as of January 29, 1994, and the related consolidated statements of
operations, common stockholders' equity and cash flows for the year then ended
(not presented herein); and in our report dated May 13, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 29, 1994 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
September 9, 1994
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
July 30, January 29,
ASSETS 1994 1994
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 13,703 $ 9,513
Accounts receivable 106,039 137,921
Inventories 125,105 121,178
Prepublication and prepaid
advertising costs 10,255 7,720
Royalty advances 3,079 2,970
Recoverable income taxes 13,806 12,830
Deferred income taxes 21,688 20,823
Net assets held for sale 93,075 88,523
Other current assets 6,873 10,361
--------- --------
Total current assets 393,623 411,839
--------- --------
OTHER ASSETS 12,887 12,447
--------- --------
PROPERTY, PLANT AND EQUIPMENT 115,903 108,601
Less accumulated depreciation and
amortization 45,371 41,351
--------- --------
Total property, plant
and equipment 70,532 67,250
--------- --------
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL),
less accumulated amortization of
$18,119 and $17,066, respectively 12,527 13,580
--------- --------
$489,569 $505,116
--------- --------
--------- --------
See Notes to Condensed Consolidated
Financial Statements.
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
July 30, January 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 28,403 $ 40,532
Accrued compensation and
fringe benefits 7,814 10,644
Income taxes342 342
Notes payable to banks 96,000
Other current liabilities 26,870 27,342
--------- ---------
Total current liabilities 159,429 78,860
--------- ---------
NONCURRENT LIABILITIES AND CREDITS:
Long-term debt 149,820 229,812
Accumulated postretirement benefit
obligation 26,789 25,949
Other 1,772 1,837
--------- ---------
Total noncurrent liabilities
and credits 178,381 257,598
--------- ---------
CONVERTIBLE PREFERRED STOCK -Series A, 20,000
shares authorized, no par value,
19,970 shares issued and outstanding;
at mandatory redemption amount 9,985 9,985
--------- ---------
COMMON STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value,
30,000,000 shares authorized, 21,227,324
and 21,167,324 shares issued 212 212
Additional paid-in capital 80,857 80,213
Retained earnings 65,341 82,714
Cumulative translation adjustments (1,814) (1,644)
--------- ---------
144,596 161,495
Less cost of Common Stock in
treasury - 208,800 shares 2,822 2,822
--------- ---------
Total common
stockholders' equity 141,774 158,673
--------- ---------
--------- ---------
$489,569 $505,116
--------- ---------
--------- ---------
See Notes to Condensed Consolidated
Financial Statements.
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
Three Months Ended
--------------------------
July 30, July 31,
1994 1993
(Unaudited)
REVENUES: $105,500 $131,321
--------- ---------
COSTS AND EXPENSES:
Cost of sales 76,039 90,203
Selling, general and administrative 29,317 43,618
--------- ---------
Total costs and expenses 105,356 133,821
--------- ---------
INCOME (LOSS) BEFORE INTEREST EXPENSE
AND INCOME TAX BENEFIT 144 (2,500)
INTEREST EXPENSE 4,790 3,949
--------- ---------
LOSS BEFORE INCOME TAX BENEFIT (4,646) (6,449)
INCOME TAX BENEFIT (1,714) (2,483)
--------- ---------
NET LOSS ($2,932) ($3,966)
--------- ---------
--------- ---------
LOSS PER COMMON SHARE ($0.15) ($0.20)
--------- ---------
--------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,985 20,957
--------- ---------
--------- ---------
See Notes to Condensed Consolidated
Financial Statements.
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
Six Months Ended
--------------------------
July 30, July 31,
1994 1993
(Unaudited)
REVENUES: $173,583 $242,284
--------- ---------
COSTS AND EXPENSES:
Cost of sales 132,718 166,763
Selling, general and administrative 59,526 88,329
Provision for writedown of division 28,180
--------- ---------
Total costs and expenses 192,244 283,272
--------- ---------
LOSS BEFORE INTEREST EXPENSE, INCOME TAX
BENEFIT AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (18,661) (40,988)
INTEREST EXPENSE 8,888 7,510
--------- ---------
LOSS BEFORE INCOME TAX BENEFIT
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (27,549) (48,498)
INCOME TAX BENEFIT (10,600) (14,220)
--------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (16,949) (34,278)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (14,800)
--------- ---------
NET LOSS ($16,949) ($49,078)
--------- ---------
--------- ---------
LOSS PER COMMON SHARE:
BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ($0.83) ($1.65)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- (0.71)
--------- ---------
NET LOSS ($0.83) ($2.36)
--------- ---------
--------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,972 20,953
--------- ---------
See Notes to Condensed Consolidated
Financial Statements.
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
--------------------------
July 30, July 31,
1994 1993
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($16,949) ($49,078)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 6,677 5,199
Amortization of intangibles
arising from acquisition 2,404 2,444
Provision for losses on accounts
receivable 2,255 2,706
Provision for writedown of
division 26,625
Cumulative effect of change in
accounting principle (before
income tax benefit) 24,300
Other 1,190 (1,406)
Changes in assets and liabilities:
Accounts receivable 30,107 13,048
Inventories (1,477) (23,206)
Prepublication, prepaid
advertising costs, and
royalty advances (2,467) (7,985)
Net assets held for sale (9,784)
Other current assets 1,517 (1,656)
Accounts payable (13,162) (14,149)
Accrued compensation and
fringe benefits (2,511) (1,022)
Income taxes (976) (20,463)
Deferred income taxes (865) (11,164)
Other current liabilities (1,472) (6,064)
--------- ---------
Net cash used in operating
activities (5,513) (61,871)
--------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of plant
and equipment (10,191) (12,822)
Proceeds from sale of School
Book Club 4,300
Return of investment in
joint venture 1,400
--------- ---------
Net cash used in investing
activities (5,891) (11,422)
--------- ---------
(Continued on Next Page)
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
--------------------------
July 30, July 31,
1994 1993
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Stock
(exercise of options) $ 600 $ 280
Increase in notes payable 16,000 65,000
Costs in connection with amendment of
credit facility (597)
Dividends paid on Preferred Stock (424) (424)
Other 5 (35)
--------- ---------
Net cash provided by
financing activities 15,584 64,821
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 10 (28)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,190 (8,500)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 9,513 10,441
--------- ---------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 13,703 $ 1,941
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 8,179 $ 7,094
--------- ---------
--------- ---------
Income taxes $ 422 $ 7,304
--------- ---------
--------- ---------
See Notes to Condensed Consolidated
Financial Statements.
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of July 30, 1994 and the results of operations
and cash flows for the three and six months ended July 30, 1994 and
July 31, 1993.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year.
These financial statements should be read in conjunction with the
consolidated financial statements of the Company contained in the
Company's Annual Report on Form 10-K for the year ended January 29,
1994.
NOTE B - Inventories
Inventories consisted of the following:
July 30, January 29,
1994 1994
(In thousands)
Raw materials $ 14,610 $ 14,913
Work in process 28,419 28,783
Finished goods 82,076 77,482
-------- --------
$125,105 $121,178
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-------- --------
NOTE C - Sale and Phase Out of Operations; Provision for Write-down
of Division; Net Assets Held for Sale
Sale and Phase Out of Operations
On November 29, 1993, the Company announced that it had recently been
approached by several companies expressing a desire to discuss a
business combination. The Board of Directors of the Company
authorized the retention of two investment banking firms as its
advisors to explore alternatives to maximize shareholder value. Based
on an analysis of various alternatives, the Company adopted a plan
designed to improve its competitive position and reduce its cost
structure through the sale or phase out of certain operations,
property divestitures and consolidations, and a workforce reduction.
The plan includes the following major components:
. An agreement in principle to sell the game and puzzle operation
(including certain inventories) to Hasbro, Inc. (Hasbro). This
transaction was completed on August 4, 1994 for cash proceeds of
approximately $97,000,000.
. The decision to exit the Direct Marketing Continuity Club and
School Book Club businesses. The sale of the School Book Club
business was consummated on July 1, 1994 for cash proceeds of
$4,300,000. On August 16, 1994, the Company entered into a
letter of intent to sell the Direct Marketing Continuity Club
business. This transaction is expected to be completed during
the third quarter of fiscal 1995.
. The closedown and sale of the Company's Fayetteville, North
Carolina manufacturing and distribution facility, which is
primarily dedicated to the game and puzzle operation but was not
included in the sale to Hasbro.
. The decision to streamline the Company's publishing business so
as to focus on its core competencies. This includes a reduction
in the management, administrative and direct labor workforces.
Through August 27, 1994, the Company has implemented workforce
reductions of over 500 salaried positions. Additionally, with
the closure of the Fayetteville facility, approximately 550
hourly positions will be reduced by year end.
The Company will use the net cash proceeds arising from the Plan to
repay outstanding debt under its Revolving Credit Agreement. The
Plan, which commenced in the first quarter of fiscal 1995, will result
in a pre-tax net gain of approximately $20,000,000, inclusive of
operating losses of the game, puzzle, direct marketing and school book
club operations from January 30, 1994 through the expected disposition
dates. Accordingly, the gain will be reflected in the consolidated
statement of operations during the third quarter of fiscal 1995.
The net assets of the game, puzzle, direct marketing and school book
club operations and the Fayetteville facility are included as a
component of Net Assets Held for Sale at July 30, 1994. For the three
and six months ended July 31, 1993, the game, puzzle, direct marketing
and school book club operations had revenues of approximately
$22,500,000 and $44,000,000, respectively. Subsequent to January 29,
1994, the statement of operations does not include the results of
these businesses.
Provision for Write-Down of Division
On May 12, 1993, the Board of Directors of the Company directed
management to review the operations of the Advertising Specialty
Division of the Company's Penn Corporation subsidiary and evaluate
various strategic alternatives, including its disposition.
Accordingly, the Company established a provision, including operating
losses through the expected disposition date, to write-down the assets
of the Division to net realizable value.
On April 29, 1994, the Company entered into a letter of intent to sell this
Division for approximately $14,000,000, subject to customary conditions.
On June 10, 1994, the Company announced that negotiations with one of the
two buyers of this Division had terminated. However, certain other
industry participants, who had expressed a strong interest in the
Vitronic(Registerd Trademark) and K-Studio(Registerd Trademark) portion of
the Division, are considering its acquisition. On August 5, 1994, the sale
of the Ritepoint(Registerd Trademark) and Adtrend(Registered Trademark)
businesses of the Division was completed for cash proceeds of $5,650,000.
The net cash proceeds from the sale of this Division will be utilized to
repay outstanding debt under the Revolving Credit Agreement. The sale of
the Vitronic(Registered Trademark) and K-Studio(Registered Trademark)
businesses is anticipated to be completed by the end of fiscal 1995.
Revenues and losses before interest expense and income taxes of the
Division, exclusive of the provision for write-down, included in the
accompanying statements of operations for the six months ended July
31, 1993 were $7,202,000 and $(2,083,000), respectively. Subsequent
to May 1, 1993, the statements of operations do not include the
results of the Division.
Net Assets Held for Sale
As of July 30, 1994 and January 29, 1994, net assets held for sale
consisted of the following:
July 30, January 29,
1994 1994
(In thousands)
Current assets (including accounts
receivable and inventories of
$45,707,000 and $48,768,000,
respectively) $56,991 $ 60,020
Property, plant and equipment, net 33,156 32,655
Other assets (primarily identified
intangibles and goodwill), net 29,981 27,933
-------- --------
120,128 120,608
Less:
Current liabilities (4,026) (5,680)
Provision for write-down, net of
Division operations subsequent
to May 1, 1993 (23,027) (26,405)
-------- --------
Net assets held for sale $ 93,075 $ 88,523
-------- --------
-------- --------
NOTE D - Notes Payable to Banks
Concurrent with the completion of the sale of the game and puzzle
operation on August 4, 1994, the Revolving Credit Agreement was
amended to provide for aggregate borrowings of $70 million, including
letters of credit of $5 million. Additionally, financial covenants
with respect to certain ratios and tangible net worth requirements
were eliminated through November 1994. Following the completion of
the sales of the game and puzzle operation and the Ritepoint and
Adtrend businesses of the Advertising Specialty division, the loans
outstanding of $96 million at July 30, 1994 were reduced by $35
million.
NOTE E - Postretirement Benefits
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards ("FASB") No. 106, "Employers' Accounting For
Postretirement Benefits Other Than Pensions". FASB No. 106 requires
the Company to accrue the estimated cost of retiree benefit payments
during the years the employee provides services. The Company elected
to recognize the cumulative effect of this obligation on the immediate
recognition basis. For the six months ended July 31, 1993, the
cumulative effect of this change in accounting principle reduced net
earnings by $24,300,000 ($14,800,000, net of income taxes).
NOTE F - Loss Per Common Share
Loss per common share was computed as follows:
Three Months Ended Six Months Ended
------------------ ------------------
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
(In thousands, except for per share data)
Net loss $(2,932) $(3,966) $(16,949) $(49,078)
------- ------- -------- --------
Preferred dividend
requirements (212) (212) (424) (424)
------- ------- -------- --------
------- ------- -------- --------
Loss applicable
to common stock $(3,144) $(4,178) $ 17,373 $(49,502)
------- ------- -------- --------
------- ------- -------- --------
Weighted average common
shares outstanding 20,985 20,957 20,972 20,953
------- ------- -------- --------
------- ------- -------- --------
Loss per common share $ (0.15) $ (0.20) $ (0.83) $ (2.36)
------- ------- -------- --------
------- ------- -------- --------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenues for the quarter ended July 30, 1994 decreased $25.8 million
(19.7%) to $105.5 million as compared to $131.3 million for the
quarter ended July 31, 1993 and decreased $68.7 million (28.4%) to
$173.6 million as compared to $242.3 million for the six months ended
July 31, 1993. On May 12, 1993, the Board of Directors of the Company
directed management to review the operations of the Advertising
Specialty Division of the Company's Penn Corporation subsidiary and
evaluate various strategic alternatives, including its disposition.
Further, on April 7, 1994, the Company announced the adoption of a
plan (the "Plan") to improve the Company's competitive position and
reduce its operating cost structure through the sale or closedown of
certain operations, property divestitures and consolidations, and a
reduction in the management, administrative and direct labor
workforces. The Plan includes the sale of the game and puzzle
operation, the exiting of the direct marketing continuity clubs and
school book club business, the closure and sale of the Company's
Fayetteville, North Carolina manufacturing and distribution facility
and streamlining the Company's publishing business so as to focus on
its core competencies. Therefore, subsequent to the Company's quarter
ended May 1, 1993, the results of operations do not include the
results of the Advertising Specialty Division and subsequent to
January 29, 1994, the results of operations do not include the results
of those businesses to be sold or closed as part of the aforementioned
Plan. The revenues of the Advertising Specialty Division and the
operations to be disposed of under the Plan were $51.2 million and
$22.6 million for the second quarter and first half of fiscal 1994,
respectively.
During the quarter ended July 30, 1994, the Company completed the sale of
its School Book Club business for cash proceeds of $4.3 million. On August
4, 1994, the game and puzzle operation was sold to Hasbro, Inc. for cash
proceeds of approximately $97.0 million. On August 5, 1994, the Company
completed the sale of the Ritepoint(Registered Trademark) and
Adtrend(Registered Trademark) businesses of its Advertising Specialty
division for cash proceeds of $5.65 million. Additionally, on August 16,
1994, the Company entered into a letter of intent to sell its Direct
Marketing Continuity Club business.
Excluding revenues of the operations to be disposed of under the Plan,
revenues decreased $3.3 million (3.0%) and $17.5 million (9.1%) for
the three and six months ended July 30, 1994 as compared to the prior
year. Consumer Products Segment revenues of the ongoing operations
increased $3.2 million (3.6%) for the quarter and decreased $10.5
million (6.5%) for the six months ended July 30, 1994. The decrease
for the six month period was primarily due to the decline in domestic
consumer product sales caused by distractions resulting from the
contemplated sale of the Company; market uncertainties and employee
concerns associated with announced overhead reduction measures and the
pending sales of certain of the Company's businesses as outlined in
the Plan; reduced customer traffic in the Company's primary retail
accounts resulting from the unusually severe weather conditions
throughout most of the country during the first quarter; and the
continued desire of the retailer to reduce on-hand inventories,
resulting in delays in the receipt of restocking and future orders.
However, in the quarter ended July 30, 1994, these declines were
offset by an increased order rate for the Company's core consumer
products (including paper tableware and party goods). Commercial
product segment revenues, other than revenues of the Advertising
Specialty Division, which is comprised of printing services, decreased
$6.5 million (34.0%) and $7.0 million (23.2%) for the quarter and six
months ended July 30, 1994. The decline for the quarter was due to
decreases in sales of graphic products, kits, software products and
custom publishing. For the six months, graphic product sales were
relatively flat, while sales of the other product lines decreased.
Price increases in the Consumer Products Segment were
approximately 4%. Sales of printing services are the result of
individual agreements entered into with customers as to price and
services performed. Accordingly, the effects on inflation cannot be
determined on the sales of printing services.
The income before interest expense and income tax benefit for the
quarter ended July 30, 1994 was $.1 million as compared to a loss of
$2.5 million for the quarter ended July 31, 1993. This improvement
of $2.6 million was the result of a $11.7 million decrease in gross
profit, offset by a $14.3 million decrease in selling, general and
administrative expenses. For the six months ended July 30, 1994, the
loss before the provision for write-down of Division, interest
expense, income tax benefit and cumulative effect of a change in
accounting principle was $18.7 million as compared to $12.8 million
for the six months ended July 31, 1993. This change of $5.9 million
was a result of the $34.7 million decrease in gross profit, offset by
a $28.8 million decrease in selling, general administrative expenses.
In addition, in the six months ended July 31, 1993, the Company
recorded a $28.2 million provision to write-down the carrying value
of the assets of the Advertising Specialty Division to their estimated
net realizable value.
Gross profit decreased $11.7 million (28.4%) to $29.5 million for the
quarter ended July 30, 1994, as compared to $41.1 million for the
quarter ended July 31, 1993. Gross profit decreased $34.7 million
(45.9%) to $40.9 million for the six months ended July 30, 1994 as
compared to $75.5 million for the six months ended July 31, 1993. As
a percentage of revenues, the gross profit margin decreased to 27.9%
and 23.5% for the quarter and six months ended July 30, 1994 from
31.3% and 31.2% for the quarter and six months ended July 31, 1993,
respectively. For ongoing operations, gross profit for the quarter
ended July 30, 1994 decreased $4.2 million (12.5%), to $29.5 million
as compared to $33.7 million in the prior year and decreased $17.8
million (30.4%) to $40.9 million for the six months ended July 30,
1994 as compared to $59.0 million for the six months ended July 31,
1993. As a percentage of revenues, the gross profit margin decreased
to 27.9% and 23.5% for the quarter and six months ended July 30, 1994
as compared to 31.0% and 30.7% for comparable periods of the prior
year. In the Consumer Products Segment, gross profit decreased $2.4
million (7.8%) to $28.0 million for the quarter ended July 30, 1994
and $15.4 million (28.5%) to $38.8 million for the six months as
compared to the prior year. As a percentage of revenues, the consumer
gross profit margin decreased to 30.1% and 25.8% for the quarter and
six months of fiscal 1995 as compared to 33.9% and 33.7% for the
quarter and six months of fiscal 1994, respectively. A substantial
portion of the decrease in gross profit margin for the quarter and six
months was due to lower production in response to the Company's
continued efforts to reduce inventories, resulting in negative
manufacturing variances. Additionally, the decrease in gross profit
was attributable to a change in product mix, which also caused an
increase in royalty costs and increased freight costs associated with
category management and direct store shipment programs. In the
Commercial Products Segment, the gross profit margin of printing
services decreased to 11.7% from 17.3% of revenues for the quarter,
and decreased to 9.1% from 14.9% for the six months as compared to the
prior year. The decrease was primarily due to unfavorable
manufacturing variances and the change in sales mix to lower margin
services.
Selling, general and administrative expenses for the quarter ended
July 30, 1994 decreased $14.3 million (32.8%) to $29.3 million and
decreased $28.8 million (32.6%) to $59.5 million for the six months
ended July 30, 1994 as compared to $43.6 million and $88.3 million for
the quarter and six months ended July 31, 1993, respectively. For
ongoing operations, selling, general and administrative expenses for
the quarter ended July 30, 1994 decreased $2.8 million (8.7%) to $29.3
million as compared to $32.1 million for the quarter ended July 31,
1993. For the six months ended July 30, 1994, selling, general and
administrative expenses decreased $3.7 million (5.9%) to $59.5 million
as compared to $63.2 million in the prior year. For the quarter, the
decrease was primarily attributable to decreased merchandising costs
associated with the category management program at Toys "R" Us and
lower advertising expenses. For the six months, the decrease was
attributable to decreased merchandising and start up costs associated
with the category management program at Toys "R" Us, lower advertising
expenses and lower payroll costs.
Interest expense for the quarter increased $.8 million to $4.8 million
as compared to $3.9 million in fiscal 1994 and for the six months
increased $1.4 million to $8.9 million as compared to $7.5 million in
fiscal 1994. The increase was due to higher average debt outstanding
and higher interest rates. Total average outstanding debt increased
to $244.3 million for the first half of fiscal 1995 from $216.2
million for the first half of fiscal 1994 (see Financial Condition,
Liquidity and Capital Resources), while average interest rates
increased from 7.0% to 7.6%. The increase in average interest rates
resulted primarily from the increase in short term market rates.
The effective income tax benefit rate of 38.5% in fiscal 1995
represents the Company's estimate of the effective tax rate for the
full year, without regard to expected dispositions under the Plan.
The income tax impact of Plan dispositions will be reflected upon
their consummation. For the six months ended July 31, 1993, the
income tax benefit rate was 29.3%, as certain capital losses
associated with the Advertising Specialty Division were not expected
to be realized.
The loss for the quarter ended July 30, 1994, was $2.9 million or
$0.15 per share as compared to a loss of $4.0 million or $0.20 per
share for the quarter ended July 31, 1993. The loss for the six
months ended July 30, 1994, before the provision for write-down of
Division and the cumulative effect of a change in accounting principle
(postretirement benefits other than pensions) was $16.9 million or
$0.83 per share, compared to a loss of $12.5 million or $0.61 per
share for the six months ended July 31, 1993. During the first half
of fiscal 1994, the Company adopted Statement of Financial Accounting
Standards ("FASB") No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions", using the immediate recognition method.
As a result, the Company recorded a pre-tax non-cash charge of $24.3
million ($14.8 million, net of income taxes) or $.71 per share as a
cumulative effect of a change in accounting principle in the statement
of operations. The Company's provision for write-down of Division was
$28.2 million ($21.8 million, net of income taxes) or $1.04 per share.
Therefore, the net loss for the six months ended July 31, 1993 was
$49.1 million or $2.36 per share.
Financial Condition, Liquidity and Capital Resources
Operations for the six months ended July 30, 1994, excluding non-cash
charges for depreciation, amortization and the provision for losses
on accounts receivable utilized cash of approximately $5.6 million.
The operations for the six months ended July 31, 1993, excluding
depreciation, amortization, provision for losses on accounts
receivable, the adoption of FASB No. 106 and the provision for the
write-down of Division provided cash of approximately $12.2 million.
During the six months ended July 30, 1994 and July 31, 1993, other
changes in assets and liabilities, resulting from operating activities
amounted to $.1 million and $74.1 million, respectively, resulting in
net cash used in operating activities of $5.5 million and $61.9
million, respectively.
Acquisitions of property, plant and equipment were $10.2 million
during the six months ended July 30, 1994 as compared to $12.8 million
during the six months ended July 31, 1993. Fiscal 1995 capital
expenditures includes costs associated with the Company's new order
processing, customer service and inventory management system and the
completion of its third Golden Books Showcase store which opened in
New York City in April 1994. The Company is currently finalizing its
previously announced plans to undertake a facility expansion of its
paper tableware and party goods operations in Kalamazoo, Michigan in
conjunction with the Company's plan to improve its competitive
position and reduce its overall operating cost structure. Although
the Company is committed to an expansion, no material commitments for
this facility expansion have been made.
Cash provided by financing activities during the six months ended July
30, 1994 and July 31, 1993 were primarily from borrowings under the
Company's Revolving Credit Agreement.
Working capital decreased to $234.2 million from $333.0 million at
January 29, 1994. The decrease in working capital is principally due
to the reclassification of the loans outstanding under the Revolving
Credit Agreement at July 30, 1994 of $96 million as the Company's
Revolving Credit Agreement expires on May 31, 1995. Following the
completion of the sales of the game and puzzle operation and the
Ritepoint and Adtrend businesses of the Advertising Specialty
Division, the loans outstanding as of July 30, 1994 were reduced and
working capital was increased by $35 million.
The Company's Revolving Credit Agreement, dated November 12, 1992,
initially provided for a line of credit totaling $200 million. The
facility provides for the seasonal working capital requirements of the
Company. In October, 1993, the Revolving Credit Agreement was amended
to provide credit availability of $140 million from December 28, 1993
until the third quarter of fiscal 1995. Subsequently, the Revolving
Credit Agreement was further amended to provide for borrowings up to
$125 million through July 31, 1994 and $140 million thereafter; in
each case, including letters of credit of $10 million. Concurrent
with the completion of the sale of the game and puzzle operation on
August 4, 1994, the Revolving Credit Agreement was amended to provide
for aggregate borrowings of $70 million, including letters of credit
of $5 million. In the first quarter of fiscal 1996, borrowings may
not exceed $15 million for a period of thirty consecutive days.
The Company's management believes that the credit facilities available
under the Revolving Credit Agreement are sufficient to meet the
Company's seasonal borrowing needs. Management anticipates that a
long term credit facility sufficient to sustain growth and meet the
Company's seasonal borrowing needs will be consummated prior to the
expiration of the current facility.
The completion of the sale of the game and puzzle operation, along
with the implementation of the balance of the Plan will have a
favorable effect on the Company's financial position, results of
operations and future capital requirements. Annual operating costs
savings associated with the Plan, exclusive of the impact of the sale
of the game, puzzle, direct marketing and school book club operations,
began to be realized in the second quarter of fiscal 1995. The
Company will continue to evaluate opportunities for other cost savings
through fiscal 1995, including possible additional facility
consolidations and further headcount reductions. It is anticipated
that the Plan will be substantially completed by the fourth quarter
of fiscal 1995.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K:
a. Exhibit 10.86 - Amendment No. 1 to Amended and
Restated Credit Agreement dated as of August 4, 1994.
b. Exhibit 15 - Letter re: unaudited interim financial
information.
c. No reports were filed on Form 8-K during the quarter
for which this report is filed.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WESTERN PUBLISHING GROUP, INC.
September 12, 1994 /s/ Richard A. Bernstein
Richard A. Bernstein
Chairman
September 12, 1994 /s/ Steven M. Grossman
Steven M. Grossman
Chief Financial Officer
EXHIBIT 10.86
Amendment No. 1
to Amended and Restated Credit Agreement
dated as of August 4, 1994
EXECUTION COPY
AMENDMENT NO. 1
TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of August 4, 1994 ("this Amendment"), between WESTERN PUBLISHING GROUP, INC., a
corporation duly organized and validly existing under the laws of the State of
Delaware (the "Company"); each of the banks listed on the signature pages hereto
(individually, a "Bank" and, collectively, the "Banks"); FLEET BANK, a New York
bank, as agent for the Banks (in such capacity, together with its successors in
such capacity, the "Agent"); and THE BANK OF NEW YORK, a New York bank, as
co-agent for the Banks (in such capacity, together with its successors in such
capacity, the "Co-Agent").
WHEREAS, the Company, the Banks, the Agent and the Co-Agent are
parties to an Amended and Restated Credit Agreement dated as of May 31, 1994
(the "Credit Agreement"), which provides, subject to the terms and conditions
thereof, for extensions of credit (by making of loans and issuing letters of
credit) by the Banks to the Company; and
WHEREAS, the Company, the Banks, the Agent and the Co-Agent wish to
amend the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth herein, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment, terms defined in the Credit Agreement that are used herein have the
same meanings herein as are ascribed to such terms in the Credit Agreement.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 6 below, but effective as of the date
hereof, the Credit Agreement is hereby amended as follows:
A. Section 8.01(a) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(a) as soon as available and in any event within 20 Business Days
after the end of each fiscal month (except for the last fiscal month of
each of the first three fiscal quarters and except that, in the case of
December, 1994, such delivery shall be made within 15 calendar days after
the end thereof), consolidated and consolidating statements of operations,
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such period,
setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the corresponding period in the
preceding fiscal year, accompanied by a certificate of a senior financial
officer of the Company, which certificate shall state that said financial
statements fairly present in all material respects the consolidated
financial condition and results of operations of the Company and its
Consolidated Subsidiaries, and the unconsolidated financial condition and
results of operations of the Company and of each of its Consolidated
Subsidiaries, in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
B. Section 8.01 of the Credit Agreement is hereby amended by
redesignating subsections (i) and (j) thereof as subsections (k) and (l),
respectively, and by adding new subsections (i) and (j) which read as follows:
(i) on or before November 30, 1994, revised forecasted consolidated
financial statements for the Company and its Subsidiaries for the
fourteen-month period ending January, 1996, in substantially the same
detail as the forecasts previously furnished by the Company to the Banks;
(j) within 15 Business Days after the beginning of each fiscal
month, a forecast of the Company's working capital requirements on a weekly
basis, and the supporting assumptions for such forecast in reasonable
detail on a monthly basis, for the period beginning on the first day of
such fiscal month and ending on the last day of the next succeeding fiscal
month;
C. Section 8.03 of the Credit Agreement is hereby amended by adding
the following to the end thereof:
, including, without limitation, full access to all information
used in preparing the forecast required to be furnished to the Banks
pursuant to Section 8.01(i) hereof.
D. Section 2.04 of the Credit Agreement is hereby amended by
redesignating subsections (d) and (e) thereof as subsections (e) and (f),
respectively, and inserting a new subsection (d) which reads as follows:
(d) Immediately upon receipt thereof, the Company shall prepay the
principal of the Loans hereunder, and the Commitments shall be reduced, in
an aggregate principal amount equal to 100% of the proceeds derived from
any refund of amounts previously paid to satisfy the Company's obligations
with respect to any federal, state or local taxes arising from the
Disposition of the assets of the Company's Games and Puzzles division
and/or its Advertising Specialty division. The Company shall make any
necessary filings with federal, state and local tax authorities to claim
such refunds promptly upon the Company becoming entitled to do so, and
shall assign all rights to receive any such tax refund to the Agent, on
behalf of the Banks, and irrevocably instruct such tax authorities to pay
any such claimed tax refund directly to the Agent, on behalf of the Banks.
In addition, in the event that the Company's actual federal, state or local
tax liability is less than the Company's estimate of such liability for
purposes of calculating the amount of net cash proceeds received by the
Company in connection with a Disposition in accordance with Section 2.04(c)
hereof, the Company shall immediately prepay the principal of the Loans
hereunder, and the Commitments shall be reduced, in an aggregate principal
amount equal to the difference between such actual tax liability and such
estimate.
E. Section 8.10 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
Section 8.10. Leverage Ratio. Commencing with the fiscal quarter
ending January 28, 1995, the Company shall not permit the Leverage Ratio to
exceed 2.50 to 1 as at the end of the third fiscal quarter of any fiscal
year of the Company, and shall not permit the Leverage Ratio to exceed 2.00
to 1 as at the end of any first, second or fourth fiscal quarter of any
fiscal year of the Company (being the fiscal quarters ending on or about
the last day of the months of April, July or January, respectively).
F. Section 8.11 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
8.11. Tangible Net Worth. The Company will not permit Tangible Net
Worth at any time on or after December 31, 1994, to be less than the sum of
(i) $150,000,000 plus (ii) an amount equal to (but not less than zero) 50%
of the Company's consolidated net income (determined in accordance with
GAAP) for the period from May 2, 1992 through the end of the Company's
fiscal quarter most recently ended (treated for this purpose as a single
accounting period).
G. Section 8.12 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
8.12. Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio for any period set forth below to be less than the
ratio set forth below opposite such period:
Period Ratio
Fiscal quarter ending January 28, 1995 3.00 to 1
Two fiscal quarters ending April 29, 1995 1.50 to 1
and each fiscal quarter thereafter
H. Section 8.18 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
8.18 Cash Flow. The Company will not permit its Cash Flow for any
period set forth below to be less than the amount set forth below opposite
such period:
Period Cash Flow
Two fiscal months ended 12/31/94 8,419,000
Three fiscal months ended 1/28/95 12,100,000
I. Section 8.19 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
8.19. Loans Outstanding. From and after November 26, 1994, the
Company will not permit the aggregate principal amount of Loans outstanding
at any time during the period commencing with the delivery by the Company
to the Agent of a compliance certificate for any fiscal month and ending
with the delivery by the Company to the Agent of a compliance certificate
for the next succeeding fiscal month to exceed the percentage set forth
below opposite such fiscal month of the total amount of Inventory and
Accounts Receivable (as each such term is defined under GAAP) of the
Company at the end of such fiscal month, as certified by such compliance
certificate:
Month Percentage
December, 1994 24.0%
January, 1995 6.5%
February, 1995 and 13.0%
thereafter
In the event that the Disposition of the Company's Advertising
Specialty division is consummated, the percentages set forth in this
Section 8.19 for each fiscal month ending thereafter shall be reduced by
the difference between the Company's projection of "Loans Outstanding as a
% of Accounts Receivable and Inventories" for the relevant fiscal month and
the respective percentages obtained by dividing (i) the Company's
projection of "Loans Outstanding (Direct Borrowings)" for the relevant
fiscal month less up to $12,000,000 of the net cash proceeds of such
Disposition received by the Company or any of its Subsidiaries by (ii) the
sum of the Company's projections for "Accounts Receivable, Net" and
"Inventories, Net" for the relevant fiscal month. The projections referred
to in the preceding sentence are set forth in Schedule V attached hereto.
Notwithstanding anything to the contrary in this Section 8.19, the
Company shall be entitled to deliver to the Agent a compliance certificate
of a senior financial officer of the Company setting forth the total amount
of Inventory and Accounts Receivable of the Company as of the date of such
compliance certificate, and thereupon the aggregate principal amount of
Loans which the Company may permit to be outstanding for purposes of this
Section 8.19 during the period commencing with the delivery of such
compliance certificate and ending with the delivery of any subsequent
compliance certificate shall be the percentage set forth in this Section
8.19 for the then current fiscal month of the total amount of Inventory and
Accounts Receivable reflected in such compliance certificate.
J. The Credit Agreement is hereby amended by inserting a new
Section 8.22, which reads as follows:
Section 8.22. Blocked Account. The Company shall establish and
maintain an interest bearing account with Fleet Bank (the "Blocked
Account"). As promptly as practicable (but in no event later than ten
Business Days) after the earlier of (i) the Disposition of all or
substantially all of the assets of the Company's Advertising Specialty
division (the "Ad Specialty Disposition") and (ii) January 28, 1995, the
Company shall deliver to the Agent a certificate of Imowitz, Koenig &
Company, or another certified independent public accounting firm reasonably
satisfactory to the Agent, certifying the amount of the Company's federal,
state and local income tax obligations payable in connection with the
Disposition of the assets of its Games and Puzzles division and the amount
of any tax benefits arising from the Ad Specialty Disposition or any other
event which has the effect of reducing the Company's tax obligations, and
such certificate shall present an itemized calculation of such tax
obligations and benefits in reasonable detail. The Company shall not
withdraw any funds from the Blocked Account except to the extent that such
tax obligations, as reduced by such tax benefits, exceed $10,000,000, as
evidenced by such certificate, and the Company shall provide such other
evidence as the Agent may reasonably request to establish the amount of
such tax obligations to the Agent's reasonable satisfaction, as well as to
verify the amount and source of other funds either utilized or to be
utilized for the payment of such tax obligations. No later than the third
Business Day following satisfaction of the conditions set forth in the two
immediately preceding sentences, the Agent shall wire transfer to an
account designated by the Company the amount of funds from the Blocked
Account which the Company is permitted to withdraw in accordance with this
Section 8.22, and thereupon any amounts on deposit in the Blocked Account
in excess of the amount which the Company is permitted to withdraw
therefrom in accordance with this Section 8.22 shall be applied by the
Agent to the Loans, and the Commitments shall be permanently reduced by
such excess, all in accordance with Section 2.04(d) of the Credit
Agreement. If the Company fails to deliver the certificate described in
the second sentence of this Section 8.22 within the time period specified
in such sentence, the entire amount on deposit in the Blocked Account shall
be applied immediately by the Agent to the Loans, and the Commitments shall
be permanently reduced by such amount, all in accordance with Section
2.04(d) of the Credit Agreement.
K. The Credit Agreement is hereby amended by inserting a new
Section 8.23, which reads as follows:
Section 8.23. Additional Restrictions on Dividends. Prior to
December 31, 1994, the Company shall not, and shall not permit any of its
Subsidiaries to, (i) declare or make any Dividend Payment on account of any
equity interest otherwise permitted by Section 8.09 of the Credit
Agreement, or (ii) declare or make any dividends (in cash, property or
obligations) on, or set apart money for a sinking or other analogous fund
for, or make any other payments or distributions on account of, or effect
any purchase, redemption, retirement or other acquisition of, the Company's
Series A Preferred Stock except as required pursuant to the existing terms
of the Company's currently outstanding Series A Preferred Stock.
L. The Credit Agreement is hereby amended by inserting a new
Section 8.24, which reads as follows:
Section 8.24. Net Operating Loss. The Company will not permit its
net operating loss (determined on a consolidated basis in accordance with
GAAP), excluding any restructuring charges, during the period from July 30,
1994 through December 31, 1994, to exceed $20,000,000.
M. Section 9(e) of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
(e) The Company shall default in the performance of any of its
obligations under any of Sections 8.05, 8.06, 8.07, 8.08, 8.14, 8.16 or
8.23 hereof; or the Company or Western shall default in the performance of
any of its other obligations in this Agreement or any other Loan Document
and such default shall continue unremedied for a period of thirty days (or,
in the case of any such default in existence at December 31, 1994, five
calendar days) after notice thereof to the Company by the Agent or any Bank
through the Agent); or
Section 3. Reduction of Commitments. Effective as of the date
hereof, pursuant to Section 2.04(b) of the Credit Agreement, the Company hereby
permanently reduces the aggregate amount of (i) the Facility B Commitments to
$50,000,000 and (ii) the Letter of Credit Commitments to $5,000,000. In
addition, the Company agrees to permanently reduce the Facility B Commitments by
100% of the amount of any net proceeds of the Disposition of the assets of its
Games and Puzzles division (other than proceeds received from the holdback with
respect to the Over The Hill Gang consent) which are received by the Company
after the date hereof.
Section 4. Waiver. Subject to the satisfaction of the conditions
precedent specified in Section 6 below, but effective as of the date hereof, the
Banks hereby waive receipt of one day's prior notice of borrowing on the date
that this Amendment becomes effective of Loans up to the full amounts of the
unused Facility A Commitments and Facility B Commitments, after giving effect to
the reductions effected pursuant to Section 3 of this Amendment.
Section 5. Representations and Warranties. The Company represents
and warrants to the Banks that the representations and warranties set forth in
Section 7 of the Credit Agreement are true and complete in all material respects
on the date hereof (except to the extent that such representations and
warranties expressly relate to an earlier date) as if made on and as of the date
hereof and as if each reference in said Section 7 to "this Agreement" included
reference to the Credit Agreement as amended by this Amendment.
Section 6. Conditions Precedent. As provided in Sections 2 and 4
above, the amendments to and waivers under the Credit Agreement set forth in
said Sections shall become effective, as of the date hereof, upon the
satisfaction of the following conditions precedent:
A. This Amendment shall have been executed and delivered by the
Company and by the Majority Banks.
B. The Company shall have prepaid the Loans in the amount required
pursuant to Section 2.04(c) of the Credit Agreement in connection with the
Disposition of the assets of the Company's Games and Puzzles division.
C. The Company shall have deposited $15,000,000 in the Blocked
Account.
D. Western shall have requested a $15,000,000 advance under the
Subsidiary Note.
E. The Agent shall have received the following documents, each of
which shall be satisfactory to the Agent in form and substance:
(1) Corporate Documents. The following documents, each certified
as indicated below:
(a) if the certificate of incorporation of the Company has been
amended since the date of the certification thereto delivered pursuant
to Section 6.01 of the Credit Agreement, a copy of such certificate,
as amended, of the Company;
(b) a certificate of the Secretary or an Assistant Secretary
of the Company, dated as of a recent date and certifying (i) that
attached thereto is a true and complete copy of the by-laws of the
Company as in effect on the date of such certificate or that the
by-laws of the Company have not been amended since the date of the
certification thereto delivered pursuant to Section 6.01 of the Credit
Agreement, (ii) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of the Company
authorizing the execution, delivery and performance of this Amendment
and the performance of the Credit Agreement as amended hereby, and
that such resolutions have not been modified, rescinded or amended and
are in full force and effect, (iii) that the certificate of
incorporation of the Company has not been amended since the date of
the certification thereto furnished pursuant to clause (a) above or
Section 6.01 of the Credit Agreement, as the case may be, and (iv) as
to the incumbency and specimen signature of each officer of the
Company executing this Amendment and each other document to be
delivered by the Company from time to time in connection with the
Credit Agreement amended hereby (and the Agent and each Bank may
conclusively rely on such certificate until it receives notice in
writing from the Company); and
(c) a certificate of another officer of the Company as to the
incumbency and specimen signature of the Secretary or such Assistant
Secretary of the Company.
(2) Opinion of Counsel to the Company. An opinion of Morgan,
Lewis & Bockius, counsel to the Company, in the form attached hereto as
Exhibit A.
(3) Games and Puzzles Certificate. A certificate of a senior
financial officer of the Company certifying the total amount of proceeds
received by the Company in respect of the Disposition of the assets of its
Games and Puzzles division and itemizing in reasonable detail the amounts
deducted therefrom in determining the net proceeds of such Disposition for
purposes of Section 2.04(c) of the Credit Agreement.
(4) Other Documents. Such other documents as the Agent or any Bank
or counsel to the Banks may reasonably request.
Section 7. Expenses. Without limiting its obligations under
Section 11.03 of the Credit Agreement, the Company agrees to pay, promptly
following demand, all reasonable out-of- pocket costs and expenses of the Agent
and the Co-Agent (including the reasonable fees and disbursements of Weil,
Gotshal & Manges, counsel to the Agent and the Banks) incurred in connection
with the negotiation, preparation, execution and delivery of this Amendment.
Section 8. Miscellaneous. Except as expressly herein provided, the
Credit Agreement shall remain unchanged and in full force and effect. This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one and the same amendatory instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart. This
Amendment shall be governed by, and construed in accordance with, the law of the
State on New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year first above written.
WESTERN PUBLISHING GROUP, INC.
By
----------------------------------------
Title:
FLEET BANK
By /s/ Patrick F. McAuliffe
----------------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
By /s/ Richard P. Hebner
----------------------------------------
Title: Vice President
CREDIT LYONNAIS
By /s/ David Bonnington
----------------------------------------
Title: Vice President
By /s/ Silvana Burdick
----------------------------------------
Title: Vice President
THE DAIWA BANK, LTD.
By /s/ James H. Broadley /s/ Barry Henry
----------------------------------------
Title: Vice President Vice President
MELLON BANK, N.A.
By /s/ Martin T. Hanning
----------------------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK USA
By /s/ Charles Greer
----------------------------------------
Title: Vice President
STANDARD CHARTERED BANK
By
----------------------------------------
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By
----------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON
By
----------------------------------------
Title: Senior Vice President
FLEET BANK,
as Agent
By /s/ Patrick F. McAuliffe
----------------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
as Co-Agent
By /s/ Richard P. Hebner
----------------------------------------
Title: Vice President
[Letterhead of Deloitt & Touche LLP]
EXHIBIT 15
September 9, 1994
Western Publishing Group, Inc.
New York, New York
We have reviewed, in accordance with standards established by the
American Institute of Certified Public Accountants, the unaudited
interim financial information of Western Publishing Group, Inc. and
subsidiaries for the periods ended July 30, 1994 and July 31, 1993,
as indicated in our report dated September 9, 1994; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended July 30,
1994, is incorporated by reference in the following Registration
Statements:
Form S-3:
File No. 33-36582
File No. 33-43214
Form S-8:
File No. 33-18430
File No. 33-18692
File No. 33-18693
File No. 33-28019
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of
the Registration Statement prepared or certified by an accountant or
a report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
Deloitte & Touche LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Western Pub-
lishing Group, Inc. and Subsidiaries Consolidated Financial Statements as of
and for the six months ended July 30, 1994 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1995
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