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 April 29, 1995
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ----------------
Commission file number 0-14399
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: 21,023,274 shares outstanding as of May
26, 1995.
WESTERN PUBLISHING GROUP, INC. AND
SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets--
April 29, 1995 (Unaudited) and
January 28, 1995 4
Condensed Consolidated Statements of Operations--
Three months ended April 29, 1995 and
April 30, 1994 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows--
Three months ended April 29, 1995 and
April 30, 1994 (Unaudited) 7
Notes to Condensed Consolidated Financial
Statements (Unaudited) 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 3. Exhibits and reports on Form 8-K 14
SIGNATURES 15
EXHIBITS
Exhibit 15 - Letter re: unaudited interim financial
information 16
2
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 April 29, 1995, and the
related condensed consolidated statements of operations and cash flows for the
three-month periods ended April 29, 1995 and April 30, 1994. 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 28, 1995, 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 April 21, 1995 (May 6, 1995 as
to Note 6), 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 28, 1995 is fairly stated, in
all material respects, in relation to the consolidated balance sheet from which
it has been derived.
Deloitte & Touche LLP
Milwaukee, Wisconsin
June 12, 1995
3
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)
- --------------------------------------------------------------------------------
April 29, January 28,
ASSETS 1995 1995
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 38,978 $ 85,406
Accounts receivable 79,158 83,251
Inventories 102,846 108,738
Prepublication and prepaid advertising costs 8,360 7,314
Royalty advances 2,365 2,221
Recoverable income taxes 5,940 5,940
Deferred income taxes 10,676 10,676
Net assets held for sale 16,816 17,681
Other current assets 6,783 6,397
-------- --------
Total current assets 271,922 327,624
-------- --------
OTHER ASSETS 14,138 14,044
-------- --------
PROPERTY, PLANT AND EQUIPMENT 124,624 122,990
Less accumulated depreciation and amortization 49,728 47,325
-------- --------
Total property, plant and equipment 74,896 75,665
-------- --------
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL), less accumulated
amortization of $19,681 and $19,173, respectively 10,965 11,473
-------- --------
$371,921 $428,806
======== =========
See Notes to Condensed Consolidated
Financial Statements
4
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
- -------------------------------------------------------------------------------
April 29, January 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 16,618 $ 18,461
Accrued compensation and fringe benefits 6,047 9,812
Notes payable to banks 32,000
Other current liabilities 32,681 39,111
-------- --------
Total current liabilities 55,346 99,384
-------- --------
NONCURRENT LIABILITIES AND CREDITS:
Long-term debt 149,832 149,828
Accumulated postretirement benefit obligation 27,217 26,894
Other 1,887 1,921
-------- --------
Total noncurrent liabilities and credits 178,936 178,643
-------- --------
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, 21,232,074 shares issued 212 212
Additional paid-in capital 80,914 80,914
Retained earnings 50,767 64,287
Cumulative translation adjustments (1,417) (1,797)
-------- --------
130,476 143,616
Less cost of Common Stock in treasury - 208,800 shares 2,822 2,822
-------- --------
Total common stockholders' equity 127,654 140,794
-------- --------
$371,921 $428,806
======== ========
See Notes to Condensed Consolidated
Financial Statements
5
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
- -------------------------------------------------------------------------
Three Months Ended
-------------------
April 29, April 30,
1995 1994
(Unaudited)
REVENUES: $85,945 $68,083
--------- ---------
COSTS AND EXPENSES:
Cost of sales 65,598 56,679
Selling, general and administrative 30,100 30,209
--------- ---------
Total costs and expenses 95,698 86,888
LOSS BEFORE INTEREST EXPENSE AND INCOME
TAX PROVISION (BENEFIT) (9,753) (18,805)
INTEREST EXPENSE 3,542 4,098
--------- ---------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) (13,295) (22,903)
PROVISION (BENEFIT) FOR INCOME TAXES 13 (8,886)
--------- ---------
NET LOSS $(13,308) $(14,017)
========= =========
LOSS PER COMMON SHARE $ (0.64) $ (0.68)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,023 20,959
========= =========
See Notes to Condensed Consolidated
Financial Statements
6
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- -------------------------------------------------------------------------------
Three Months Ended
--------------------------
April 29, April 30,
1995 1994
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,308) $(14,017)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on disposition of plant and equipment (361)
Depreciation 3,116 3,254
Amortization of intangibles 658 1,201
Provision for losses on accounts receivable 182 1,466
Other 642 410
Changes in assets and liabilities:
Accounts receivable 4,311 40,571
Inventories 6,100 482
Prepublication, prepaid advertising costs
and royalty advances (1,209) (2,253)
Net assets held for sale (6,187)
Other current assets (820) 2,533
Accounts payable (1,840) (22,111)
Accrued compensation and fringe benefits (3,771) (2,664)
Income taxes (175) (11,346)
Other current liabilities (6,820) (7,962)
--------- ---------
Net cash used in operating activities (13,295) (16,623)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of plant and equipment (2,311) (4,817)
Proceeds from streamlining plan 865
Proceeds from disposition of plant and equipment 517
--------- ---------
Net cash used in investing activities (929) (4,817)
--------- ---------
7
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- --------------------------------------------------------------------------------
Three Months Ended
--------------------------
April 29, April 30,
1995 1994
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under Credit Agreement $(32,000) $20,000
Dividends paid on Preferred Stock (212) (212)
Other (19)
--------- --------
Net cash (used in) provided
by financing activities (32,212) 19,769
--------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 8 5
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (46,428) (1,666)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 85,406 9,513
--------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 38,978 $ 7,847
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,091 $ 6,846
Income taxes 151 129
See Notes to Condensed Consolidated
Financial Statements
8
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 necessary to present fairly the
financial position as of April 29, 1995 and the results of operations and cash
flows for the three month periods ended April 29, 1995 and April 30, 1994.
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 Form 10-K for the
year ended January 28, 1995.
NOTE B - Inventories
Inventories consisted of the following:
April 29, January 28,
1995 1995
(In Thousands)
Raw materials $ 11,802 $ 9,934
Work in process 18,963 19,900
Finished goods 72,081 78,904
-------- --------
$102,846 $108,738
======== ========
NOTE C - Net Assets Held for Sale
During Fiscal 1995, the Company adopted a plan (the "streamlining plan")
designed to improve its competitive position and reduce its cost structure
through the sale, divestiture, consolidation or phase out of certain operations,
properties and products, and a workforce reduction. As of April 29, 1995, the
remaining net assets held for sale primarily relate to the Company's
Fayetteville facility, which was closed in conjunction with the sale of its game
and puzzle business.
9
Net assets held for sale consisted of the following:
April 29, January 28,
1995 1995
(In Thousands)
Current assets $ 1,316 $ 2,181
Property, plant and equipment, net 17,500 17,500
-------- ---------
18,816 19,681
Less:
Current liabilities (2,000) (2,000)
-------- ---------
Net assets held for sale $ 16,816 $ 17,681
======== =========
NOTE D - Loss Per Common Share
Loss per common share was computed as follows:
Three Months Ended
------------------
April 29, April 30,
1995 1994
(In Thousands
except for per share data)
Net loss $(13,308) $(14,017)
Preferred dividend requirements (212) (212)
-------- --------
Loss applicable to common stock $(13,520) $(14,229)
======== ========
Weighted average common shares outstanding 21,023 20,959
======== ========
Loss per common share $ (0.64) $ (0.68)
======== ========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenues for the quarter ended April 29, 1995 increased $17.9 million (26.2%)
to $85.9 million as compared to $68.1 million for the quarter ended April 30,
1994. Consumer Products Segment revenues increased $13.5 million (23.5%) for
the quarter ended April 29, 1995. The increase was primarily due to the
Company's strategy to focus on its core competencies which led to an overall
increase in its core consumer products categories. This increase was further
enhanced by increased sales from category management programs and the expanded
distribution of decorated paper tableware and party goods products. Commercial
Product Segment revenues which are comprised of printing services, increased
$4.3 million (41.2%) for the quarter ended April 29, 1995. The increase for
the quarter was due to significant growth in the Company's educational kit
business and increased custom publishing sales.
Price increases in the Consumer Products Segment were approximately 2%. 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 loss before interest expense and the provision (benefit) for income taxes
for the quarter ended April 29, 1995 was $9.8 million as compared to a loss of
$18.8 million for the quarter ended April 30, 1994. The $9.0 million
improvement was the result of a $8.9 million increase in gross profit and a
$.1 million decrease in selling, general and administrative expenses.
Gross profit increased $8.9 million (78.4%) to $20.3 million for the quarter
ended April 29, 1995 as compared to $11.4 million for the quarter ended April
30, 1994. As a percentage of revenues, the gross profit margin increased to
23.7% for the quarter ended April 29, 1995 from 16.8% for the quarter ended
April 30, 1994. In the Consumer Products Segment, gross profit increased $7.3
million (67.9%) to $18.1 million for the quarter ended April 29, 1995 as
compared to the quarter ended April 30, 1994. As a percentage of revenues,
the Consumer Products Segment gross profit margin increased to 25.5% for the
Fiscal 1996 period as compared to 18.7% for the Fiscal 1995 period. The
increase in gross profit margin resulted from a reduction in unfavorable
manufacturing variances due to incremental production in response to increased
demand for the Company's products, manufacturing efficiencies realized and
product specification changes, partially offset by increased raw material
prices for certain grades of paper. Additionally, the increase in gross
profit margin was attributable to a favorable change in product mix, which
caused a decrease in royalty costs. In the Commercial Products Segment, the
gross profit margin of printing services increased to 15.1% for the quarter
ended April 29, 1995 from 5.9% for the quarter ended April 30, 1994. The
increase was due to a favorable shift in product mix to higher margin
products, lower unfavorable manufacturing variances and effective sourcing of
educational kit components.
Selling, general and administrative expenses for the quarter ended April 29,
1995 decreased $.1 million (.4%) to $30.1 million as compared to $30.2 million
for the quarter ended April 30, 1994. This decrease is primarily the result
of lower selling expenses resulting from the restructuring of the sales and
merchandising forces, partially offset by general increases in other
administrative categories.
11
Interest expense for the quarter decreased $.6 million to $3.5 million as
compared to $4.1 million in Fiscal 1995. The decrease was due to lower
average debt outstanding as the Company repaid all outstanding notes under its
Revolving Credit Agreement, offset by higher interest rates. Total average
outstanding debt decreased to $164.9 million for the Fiscal 1996 period from
$240.0 million for the Fiscal 1995 period (see Financial Condition, Liquidity
and Capital Resources), while average interest rates increased to 8.5% for the
Fiscal 1996 period as compared to 6.9% for the Fiscal 1995 period. The
increase in average interest rates resulted primarily from the increase in
short term rates.
Presently, the Company does not anticipate any significant provision or
benefit for income taxes in Fiscal 1996; therefore, for the quarter ended
April 29, 1995, there was no income tax benefit from operations as no tax
benefit was recognized on operating losses. Profitable operating results in
subsequent periods will benefit from an income tax rate which will be lower
than the statutory rate due to the reinstatement of deferred tax assets for
which a valuation allowance was established in prior periods. For the quarter
ended April 30, 1994, the income tax benefit rate was 38.8%.
The loss for the quarter ended April 29, 1995 was $13.3 million or $0.64 per
share, compared to a loss of $14.0 million or $0.68 per share for the quarter
ended April 30, 1994. The loss results from the normal seasonality of the
Company's business, which historically incurs an operating loss in the first
quarter. As the Consumer Products Segment ships product to its retailing
customers in anticipation of the holiday selling season, the Company
experiences a greater portion of its total revenues in the second half of the
fiscal year.
Financial Condition, Liquidity and Capital Resources
Operations for the quarter ended April 29, 1995, excluding non-cash charges
for depreciation, amortization and the provision for losses on accounts
receivable utilized cash of approximately $9.4 million as compared to $8.1
million during the quarter ended April 30, 1994. During the quarters ended
April 29, 1995 and April 30, 1994, other changes in assets and liabilities,
resulting from operating activities, used cash of $3.9 million and $8.5
million, respectively, resulting in net cash used in operating activities of
$13.3 million and $16.6 million, respectively.
Acquisitions of property, plant and equipment were $2.3 million during the
quarter ended April 29, 1995 as compared to $4.8 million during the quarter
ended April 30, 1994. Capital expenditures include costs associated with the
Company's new order processing, customer service and inventory management
system, retail fixtures utilized in its category management programs and the
installation of emission control equipment in one of its manufacturing
facilities. The Company is finalizing its previously announced plans to
undertake a facility expansion of its paper tableware and party goods
operations in Kalamazoo, Michigan. During the second quarter of Fiscal 1996,
the Company expects to complete an agreement for the construction of this
facility expansion.
During the quarter ended April 29, 1995, the Company utilized cash for
financing activities by repaying $32.0 million of outstanding borrowings under
its Revolving Credit Agreement and the Agreement was terminated. Cash
provided by financing activities during the quarter ended April 30, 1994 was
primarily from borrowings of $20.0 million under the Company's Revolving
Credit Agreement.
12
Working capital decreased to $216.6 million from $228.2 million at January 28,
1995. This decrease results from the Company's investment in property, plant
and equipment and the funds required for its operations during the first
quarter of Fiscal 1996. While the Company does not anticipate any
interruption in its business because of the reduced availability of certain
grades of paper, manufacturing costs in Fiscal 1996 will be impacted by the
resulting cost increases.
Following the repayment of all outstanding notes and the termination of its
Revolving Credit Agreement, the Company has been negotiating with a number of
financial institutions to arrange financing for its seasonal borrowing
requirements, which are projected to be significantly reduced from historical
levels. In the opinion of management, the Company will be able to negotiate
an acceptable financing arrangement to meet these requirements. However, if
the Company is unable to successfully negotiate an acceptable financing
arrangement, management has developed alternative plans which could include
the deferral of capital expenditures, the implementation of working capital
management programs, and/or the sale of assets, resulting in a reduction in
its peak seasonal needs. Accordingly, in the opinion of management, the
implementation of the alternative plans, if necessary, will not materially
impact planned operating levels.
13
PART II OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibit 15 - Letter re: unaudited interim financial information.
b. No reports were filed on Form 8-K during the quarter for which
this report is filed.
14
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.
June 12, 1995 /s/ Richard A. Bernstein
---------------------------------
Richard A. Bernstein
Chairman
June 12, 1995 /s/ Steven M. Grossman
--------------------------------
Steven M. Grossman
Chief Financial Officer
15
EXHIBIT 15
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 April 29, 1995 and April 30, 1994, as indicated in our report dated June
12, 1995; 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 April 29, 1995, is
incorporated by reference in the following Registration Statements:
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
Milwaukee, Wisconsin
June 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Western
Publishing Group, Inc. and Subsidiaries Condensed Consolidated Financial
Statements as of and for the three months ended April 29, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> APR-29-1995
<CASH> 38,978
<SECURITIES> 0
<RECEIVABLES> 89,259
<ALLOWANCES> 10,101
<INVENTORY> 102,846
<CURRENT-ASSETS> 271,922
<PP&E> 124,624
<DEPRECIATION> 49,728
<TOTAL-ASSETS> 371,921
<CURRENT-LIABILITIES> 55,346
<BONDS> 149,832
9,985
0
<COMMON> 212
<OTHER-SE> 127,442
<TOTAL-LIABILITY-AND-EQUITY> 371,921
<SALES> 84,072
<TOTAL-REVENUES> 85,945
<CGS> 65,598
<TOTAL-COSTS> 30,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 3,542
<INCOME-PRETAX> (13,295)
<INCOME-TAX> 13
<INCOME-CONTINUING> (13,308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,308)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> 0
<FN>
[INSERT TEXT OF FOOTNOTE B]
</TABLE>
